The Ownership Agreement's Impact on a Business Sale: Where It Can Go Wrong

If you already have an ownership agreement, it's tempting to think the hard part of a future business sale is already solved. In practice, it's often the opposite: an ownership agreement not written with a sale in mind can create exactly the complications it was meant to prevent.

The articles of association win — not the ownership agreement

The most overlooked problem is also the most fundamental: if there's a discrepancy between the company's articles of association and the ownership agreement, the articles generally govern in relation to third parties and the company — the ownership agreement is only binding between the owners who signed it. If you've agreed on, say, a right of first refusal or a specific decision process in the ownership agreement, but the articles were never updated to reflect it, you risk a buyer or a court giving weight to the articles — not to what you internally believed applied. Always check that the articles and the ownership agreement actually align, well before a sale process begins.

A right of first refusal can delay — or block — an external sale

If you've agreed on a right of first refusal for the other owners, it generally needs to be offered and resolved before an external buyer can take over the stakes. In practice, that means an otherwise clear deal with an external buyer can be delayed while the other owners decide whether to exercise their right — and, at worst, a co-owner who genuinely can't afford or doesn't want to take over the stake themselves can still use the right of first refusal as a bargaining chip or a stalling tactic.

Consent requirements can give a single co-owner veto power

Many ownership agreements require consent from the other owners before a stake can be sold to an outside party — often to prevent sales to competitors or other unwanted buyers. The problem arises when consent isn't given, because a co-owner genuinely disagrees with the decision to sell itself, or wants better terms for themselves as a condition of their consent. Without a clear process for what happens if consent is unreasonably withheld, the entire sale can stall.

Drag-along rights: what if the threshold isn't reached?

A drag-along right normally forces minority owners to sell along if an agreed share of the company — typically 50% or more — is being sold to the same buyer. The good intent is that a buyer can get the whole company in one deal. The complication arises if the selling stake falls just below the agreed threshold: then the drag-along can't be triggered at all, and the buyer is left with only part of the company — something many buyers simply aren't interested in.

The valuation formula doesn't always hold up in a real deal

Most ownership agreements include a formula for how an owner's stake should be valued internally — for instance on exit. The problem is that such a negotiated formula from several years back rarely reflects the price an external buyer is actually willing to pay in a current deal. If the formula needs to be used to determine a departing owner's stake mid-sale-process, it can create real disagreement between the owners about what "the right" price actually is.

Unclear or missing provisions are just as problematic as strict ones

If you have no ownership agreement at all, or it's silent on the sale situation, the default under company law is that an owner can freely sell their stake to anyone, without requiring consent from the other owners — which can be just as problematic if you'd rather have had control over who comes in as a new co-owner.

How to avoid the ownership agreement becoming an obstacle

• Review the ownership agreement and articles together well before listing the business for sale — and fix any discrepancies between them.
• Clarify how a right of first refusal or a consent requirement should specifically be handled if an external buyer comes forward — including response deadlines.
• Check whether the drag-along threshold will realistically be triggered by the type of deal you expect.
• Assess whether the agreed valuation formula still makes sense, or should be updated, before a real sale process begins.
• Have a lawyer review the ownership agreement specifically with a future sale in mind — not only with day-to-day operations as the focus.

When should you do this review, before listing the business for sale?

As early as possible in your sale preparation — ideally a year or more before you expect to start a real sale process. If the problems are only discovered once a buyer is already in dialogue with you, you lose both time and negotiating power.

Frequently asked questions

Can a co-owner block a sale entirely by withholding consent?

It depends on how the ownership agreement is specifically worded. If there's no process for what happens when there's disagreement over consent, it can genuinely stall the sale — which is why it's worth clarifying in the ownership agreement before it becomes an issue.

What happens if the articles and the ownership agreement contradict each other?

Generally, the articles govern in relation to the company and third parties. The ownership agreement is only binding between the owners who signed it — so the two documents should always align.

Should we update the ownership agreement if we're already in a sale process?

It's still possible, but it's far easier to agree on changes before a specific buyer and a specific price are on the table. If you're already in process, get the ambiguities clarified as quickly as possible regardless.

Unsure how your ownership agreement will play into an upcoming deal? Book a no-obligation call, or read our general walkthrough of what an ownership agreement should include.