Share Transfer Restrictions and Family Business: The Minority Shareholder Perspective

Abstract:

Small- and medium-sized enterprises (SMEs), of which most are family-owned businesses (FOBs), play a substantial part in any nation's economy. They are, in many ways, different from large companies with scattered ownership; therefore, further developments accounting for their special circumstances are needed. We study shareholder protection and aim to narrow the gap between theory and practice regarding commercial law in relation to the FOBs. An entrepreneurially friendly environment presupposes that owners can protect their ownership positions against unwanted acquisitions of shares, and not be unwillingly locked-in in a position as minority owners. This requires legal rules that are neither unnecessarily costly, nor time and energy consuming to comply with. Legislators should thus provide a set of rules that facilitates owners to effectively avoid both unwanted acquisitions of shares and locked-in positions. We conclude that default rules, such as a right of first refusal, should be included in the articles of association. We also find it important to allow clauses that enhance the possibility of avoiding locked-in positions, where most national legislations today permit only clauses that contribute to the protection of ownership positions.