Four Owners, One Dissents, What Could Go Wrong?

April 02, 2025

by a searcher from The University of Michigan - Stephen M. Ross School of Business in Kirkland, WA, USA

Hello SF community,

I’m in the process of acquiring a company with four equal owners. In our most recent revision of the purchase agreement, three of the four owners have agreed to the terms, while the fourth is abstaining and may dissent at closing. This is structured as a stock purchase. The company’s corporate bylaws specify that the transaction can proceed with majority approval.

Has anyone navigated a closing under similar circumstances? What are the potential risks of future litigation from the abstaining/dissenting owner? Are there proactive steps we can take to protect the company from such legal challenges?

I’d greatly appreciate any insights, advice, or experiences you can share. Thank you!

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Reply by a professional
in Bergamo, Province of Bergamo, Italy

Hi Dwight, the likelihood that the dissident owner obstacles the selling process and/or the operations of the company once the new owner steps in, really depends on the amount of equity they own (obviously), and on the rights incorporated into their shares. If you are looking to get full control of the target company, it is advisable to have some professionals assist you in analysing the cap table of this company.

Reply by a professional
from Northwestern University in Chicago, IL, USA

I would look if there's a drag right as that's a powerful provision, which basically forces the dissenting owner to sign the docs (or at the least the company has the power of attorney to sign on behalf of the dissenting owner, just make sure that the org docs have a power of attorney provision, otherwise you'll need the dissenting owner to actually sign the purchase docs).

In terms of the reps in the purchase agreement, typically the key stockholders will make the reps and some times the liability for misrepresentation is several and not joint and limited to the proceeds each one receives. I would make sure it's joint and several and to the entire amount of the purchase price to cover the dissenting owner if he decides not to be part of the transaction. If you can get seller financing that would also be good to give you some additional comfort.

I'm generally not a fan of legal opinions - I've drafted many of them over my career - because they only cover the law, but not the facts of the situation and its littered with assumptions and carve-outs to reduce a law firm's liability. For instance, if the owners lie/misrepresent/omit information, to the lawyer, then the opinion is basically useless. The opinion is also only as valuable as the law firm that writes it (or its insurance policy) so even if the law firm makes a gross mistake you probably won't recover all your losses. Lastly, it will also cost you money so will increase your transaction costs. Having said that, some folks like them because it makes lawyers double check their homework, which admittedly, does provide some comfort.

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