Part of the role of a shareholders' agreement is to protect owners in the event that some or all of you decide to exit the business. So now is the perfect time to review the agreement you have in place. You may even consider revising the agreement if all shareholders wish to make amendments ahead of a potential sale. This can help avoid conflict and delays once the sale process begins.

Your shareholders' agreement is likely to contain at least one of these following clauses.

Shotgun Clause
This clause allows a shareholder to buy out their partner(s). While there are many different variations of 'shotgun' clauses, they typically involve one partner offering to buy out the other partner(s) at a specified price. The other partner(s) must either accept the offer and sell their shares or buy out the partner who made the initial offer at the same price.

Right of First Refusal
This comes into play when one shareholder receives an offer from a third party to purchase their shares. Before accepting the offer, the shareholder who receives the offer must first offer to sell their shares to the other business owners on the exact same terms. If the remaining shareholders do not opt to buy-out their partner then the sale to the third party must be concluded on the same terms offered to the existing shareholders.

Tag-Along Right
This is often used in conjunction with the 'right of first refusal'. If the shareholders decide not to buy-out the partner who has received an offer for their shares, the 'tag-along' clause requires the third party to buy their shares as well. This is often used in scenarios where the remaining shareholders do not wish to go into business with the third party and/or represent a minority stake in the company.

Drag-along Clause
This clause is used to compel a shareholder to sell their portion of the business to a third party if a majority of the other shareholders are in favour of the sale. It is up to the shareholders to set the voting threshold
for selling the business when they are drafting the shareholders agreement. For example, the shareholders could elect that if 2 out 3 owners agree to sell the business then the 'drag-along' clause can be applied. Alternatively, the formula could require a certain percentage of voting shares.

Your shareholders' agreement is in place to protect you and the other shareholders should one or all of you decide to leave the business. Potential buyers will want to understand the potential scenarios that might play out as well; so ensuring that you have a current shareholders' agreement is an essential part of your preparation to sell.