It is often advantageous for a shareholders` pact to commit circumstances regarding the sale of the company`s shares to a third-party acquirer. In particular, it may be advisable that the shareholders` pact include provisions relating to (1) compulsory sales rights, (2) « tagalong » rights and (3) participation in a subsequent sale. When an independent expert is asked to determine value at regular intervals or when an event triggers an event occurs, parties to a shareholders` pact should be satisfied that the selected person or company has statements about the nature of the business and that all relevant factors are taken into account. A shareholder pact sometimes indicates which designated entity is to make the valuation or may contain a list of appropriate valuation companies from which shareholders can choose if necessary. Often, because of their actual or perceived conflicts of interest with one or more of the company`s shareholders, the company`s accounting experts are often prohibited from acting as independent valuation experts. A pellet gun clause can be a problem when shareholders have very different bargaining forces. These may be situations in which a shareholder has access to greater financial resources, when shareholders have different proportional stakes in the company or where only one of the shareholders is actively involved in the business and has a better understanding of the company`s activities and future prospects. In some cases, particularly in small businesses, a shareholder may benefit from a « personal value » that benefits the company because of its reputation, business contacts, etc., and is not transferable. As a result, the transaction may be worth much more to a shareholder who has a personal value than to a shareholder who does not. A frequently used option is fair market value. This term is generally defined as the highest price, in terms of money or monetary value, available in an open and unrestricted market between informed and prudent parties acting along the length of the arms, neither party being forced to act. If the term « fair market value » is used, it is likely that an external enterprise supplier will have to determine the value.
But who chooses the appraiser and who pays the bill? If the parties do not agree with the value obtained by the evaluator, the agreement should establish a way to resolve this issue. A well-structured shareholder pact can assure a shareholder who terminates his ties with the company that there will be a market for his shares at a price that he or all other shareholders will consider fair.