Finding an interested buyer may seem like the most important step in selling a company. However, before discussing the price, signing a letter of intent, or moving forward with negotiations, there is one question that many business owners leave unanswered until it is too late:
When a company has two or more shareholders, the sale of an ownership interest does not depend solely on the seller and buyer reaching an agreement. The articles of incorporation, bylaws, shareholders’ agreements, and previously established restrictions may determine who can sell, to whom, under what conditions, and even what rights the other shareholders have in relation to the transaction.
Therefore, if you are considering selling your shares, bringing in an investor, restructuring your company, or preparing for future business succession, reviewing your corporate structure before entering negotiations can help prevent legal issues from arising precisely when a business opportunity presents itself.
In Panama, Law 32 of 1927 establishes that registered shares are transferable in accordance with the provisions of the articles of incorporation or bylaws, and that their transfer must be recorded in the Share Register to be binding upon the company.
The same law allows the articles of incorporation to establish preferential purchase rights in favor of the company or its shareholders, as well as other restrictions on the transfer of shares, provided they do not constitute an absolute prohibition on transferring them.
This means that not all companies are structured in the same way.
Two seemingly similar companies may have completely different rules governing a shareholder’s exit.
Therefore, before accepting an offer, it is advisable to examine at least the following four points.
Imagine that an investor offers to purchase your shares, and you consider the proposed terms attractive.
Can you accept the offer immediately?
Not necessarily.
If a preferential purchase right exists, the company’s governing documents may require that the shares first be offered to the company itself or to the other shareholders before they can be sold to a third party.
In Panama, this mechanism may be expressly included in the articles of incorporation.
Depending on how the provision is drafted, it may be necessary to review aspects such as the notification procedure, the period for exercising the right, the applicable price, and the conditions under which the sale to a third party may subsequently take place.
Because initiating negotiations with an external buyer without verifying this provision may cause delays, disputes among shareholders, or even affect the structure of a transaction that initially appeared to be moving forward smoothly.
Before looking for a buyer, it is important to know who has the right to purchase first.
Tag-along rights are commonly used to protect minority shareholders when a controlling shareholder sells their ownership interest.
When properly established, these rights may allow other shareholders to participate in the transaction under previously agreed terms.
For example, if a majority shareholder negotiates the sale of their interest to a third party, the agreement may grant certain shareholders the right to sell some or all of their shares as part of the same transaction.
The existence, scope, and conditions of this mechanism depend on what the parties have expressly agreed upon.
Because negotiations may change significantly if other shareholders have the right to participate in the sale.
The buyer may be interested only in acquiring a controlling interest or, alternatively, may prefer to acquire a larger percentage of the company.
Understanding these rules before entering negotiations makes it possible to structure a realistic transaction from the outset.
Drag-along rights address a different situation.
In certain corporate structures, shareholders may agree to a mechanism under which, if specific conditions are met, other shareholders may be required to participate in a sale transaction.
This may be particularly relevant when a potential buyer states:
“I am interested in the company, but only if I can acquire 100% of it.”
Without a previously defined structure, a shareholder who does not wish to sell could become an obstacle to a transaction that the remaining shareholders consider beneficial.
A well-drafted agreement can establish in advance matters such as the ownership percentages required to trigger the mechanism, financial terms, treatment of the shareholders involved, and the procedures that must be followed.
There is no one-size-fits-all approach. The drafting must reflect the circumstances of each company and the relationship among its shareholders.
Many disputes among shareholders do not begin because someone wants to leave the company.
They begin when everyone agrees that a shareholder should exit, but no one agrees on the price.
A valuation clause or mechanism can establish in advance how the value of an ownership interest will be determined when a particular event occurs.
Among other elements, it may address:
The valuation method.
The involvement of an independent appraiser or specialist.
The date used as the valuation reference.
The payment structure.
The applicable deadlines.
The procedure to be followed in the event of a disagreement.
Defining these matters while relationships among shareholders remain stable is generally much easier than attempting to negotiate them when one shareholder has already decided to leave the company.
In some companies, an even more delicate situation arises:
The rules were never established in the first place.
The company was founded by friends, family members, or business partners. At the time, there was mutual trust, the business was just beginning to grow, and no one was thinking about selling.
Five, ten, or fifteen years passed.
Today, the company has employees, assets, contracts, clients, intellectual property, and a value significantly different from what it had when it started.
Then a buyer appears.
Or one of the shareholders wants to retire.
Or a new generation becomes involved in the family business.
And that is when everyone discovers that they never agreed on what should happen in such circumstances.
This is why corporate planning should not begin only when a conflict arises.
Even if there is currently no potential buyer, certain situations make it advisable to review corporate documentation in advance.
If you are considering selling in the coming years. An early review can help identify restrictions or gaps before discussions with investors begin.
If a new shareholder is joining the company. This is one of the best opportunities to establish how a future exit will be handled.
If the company is growing rapidly. A corporate structure that worked for a small startup may become insufficient as the business increases in value.
If it is a family-owned business. The potential exit, retirement, or succession of one of the founders should be planned before it becomes necessary.
If disagreements exist among shareholders. It is preferable to understand each party’s rights and obligations before a disagreement develops into a conflict that affects the company.
A preliminary legal review should generally begin with the company’s actual corporate documentation.
Relevant documents may include the articles of incorporation, bylaws, Share Register, shareholders’ agreements, previous corporate amendments, and any other documents containing rights or restrictions related to the transfer of ownership interests.
Panama’s Law 32 of 1927, for example, expressly recognizes that the articles of incorporation may include provisions concerning rights, preferences, and restrictions applicable to shares.
However, understanding the legislation is only part of the analysis.
The question that truly matters to a business owner is:
Answering that question requires examining the company’s specific corporate structure and the documents that have actually been executed.
A company may have strong financial results, an interested buyer, and an attractive offer, yet still face difficulties closing a transaction if its internal rules are unclear.
Therefore, before negotiating an exit, bringing in an investor, or accepting an acquisition proposal, it is important to understand exactly:
What can be sold, whose authorization is required, what rights the other shareholders have, and what procedures must be followed.
Legal prevention in these situations is not about making negotiations more complicated.
It is about preparing the company to negotiate with greater clarity.
JVD Consultores provides legal advisory services in Corporate Law, Mergers and Acquisitions (M&A), and other legal and business areas, offering personalized services to companies and business owners in Panama.
If you are considering selling a company, bringing in or buying out a shareholder, undertaking a corporate restructuring, or simply determining whether your existing agreements are prepared for a future transaction, an early legal review can help identify matters that require attention before negotiations begin.
Let’s discuss your company’s legal structure.
JVD CONSULTORES
Legal and Business Advisory Services
📞 +507 310-0650
