How do I sell a minority stake in my business?

Selling a minority stake means selling part of your shares, below the level that gives the buyer control, so you stay in charge while taking some value out or bringing in a partner. Structurally it is still a share sale, but it changes the company’s governance in ways a sole owner never had to consider.

Existing shares or new shares

Selling existing shares puts the money in your pocket, while having the company issue new shares puts it into the business. Which fits depends on whether you want cash for yourself, capital for growth, or a mix of both. The percentage the buyer takes, and the rights that come with it, are separate questions for the agreement.

What can restrict the sale

Start with the articles. Under the Canada Business Corporations Act, if the transfer of shares is to be restricted, the articles must say so and state the nature of the restrictions, and Corporations Canada says adding or removing a transfer restriction takes a special resolution amending the articles. Then look for a unanimous shareholder agreement: a buyer of shares subject to one is deemed a party to it under both the federal Act and Ontario’s Business Corporations Act. Under the federal Act, a buyer who was not told of one may rescind within 30 days of learning of it, so disclose it early.

What the new shareholder will expect

Treadstone Law lists what a shareholders’ agreement for a minority sale can cover: which decisions need the minority holder’s consent, limits and rights of first refusal on later transfers, drag-along and tag-along rights, dividend and compensation policy, and dispute resolution. It also flags valuation disputes later if the agreement does not clearly define how future share transfers or buyouts will be valued.

Protections a minority holder keeps

Corporate law gives a minority shareholder rights apart from your agreement. Under the federal Act, a security holder can ask a court to act where the company’s acts, the way its affairs are carried on or the directors’ exercise of their powers is oppressive or unfairly prejudicial to a security holder, or unfairly disregards that holder’s interests, and the court’s orders can include directing the company or another person to buy that holder’s securities, subject to a solvency limit in s.241(6).