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I Want to Be a Buyer, Not a Seller, Part 2

Can You Buy Out a Majority Business Partner?

A minority shareholder will most often seek a buyout as a judicial remedy.   However, in some instances, the minority shareholder may want to be the purchaser instead of the seller.  Although this is never easy, it is possible, depending upon the particular facts.

If you have a chance of being the purchaser of the majority’s interest, by definition you have been successful in demonstrating that the majority shareholders engaged in wrongful conduct.  Often the question becomes, just how wrongful was the conduct?

A skilled attorney should focus the court on how improper, non-business expenditures robbed the company of various opportunities.  For example, it’s easy to say the majority shareholder should not have spent $500,000 on an addition to his Aspen vacation house. But, if the focus is placed on the fact that YOU would have spent the $500,000 on a particular investment that would have grown the company and created more jobs, you can position yourself as more deserving of owning the company, even though you are currently a minority shareholder.

The manner in which employees are treated can be critical, too.  Showing that employees prefer you to the majority shareholder and are more likely to remain employed if you take over can be a factor in your favor.  This is especially effective if they so testify, since the judge will know that they are taking risk by doing so.

It is of course easier to present yourself as the person who deserves to own the company if you have been an active participant for years, while the majority shareholder has been winding down his involvement.  Anything you can do to facilitate this process, and make the transition more readily apparent, will help.  The more responsibilities you have, the stronger your claim to wind up with the company.  I have seen at least one majority owner who was satisfied to force the minority owner to do the lion’s share of the work for a fraction of the majority owner’s inflated salary.  After we consulted, the client decided that, instead of filing suit right away, he would do the extra work for a year to bolster his claim that he, not the majority stockholders, was the one vital to the success of the company.

It worked, and the client wound up owning the company, much to the majority shareholder’s chagrin.