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A client investment in an operating business, particularly a minority stake, is only as good as its liquidity rights. If a client cannot readily sell his or her ownership stake at fair market value, it has little real value.
The key to ensuring liquidity is contractually creating a private market for the ownership stake. This market can come in the form of requiring other stakeholders, including the majority owner, to buy the minority stake at a mutually agreeable price, or creating other mechanisms for selling the stake to third parties. Without these contract rights, a stakeholder has no liquidity and is stuck.
This program provides a practical to planning and drafting contractual liquidity rights in closely held companies.
- Planning and drafting liquidity rights in closely held companies
- Counseling clients about the limitations and risks of liquidity in closely held companies
- Framework of alternatives for determining most appropriate liquidity rights
- "Texas standoff" or "Russian roulette" – opportunities, risks and tradeoffs
- Drafting "tag-along" and "drag-along" rights – practical uses and drawbacks
- How to think about valuing closely held ownership stakes