Drafting Drag along Triggers in International Shareholders Agreements
Drafting cross-border drag-along triggers requires verifiable voting thresholds, explicit cash valuation floors, and deeded power-of-attorney execution clamp mechanics.
Stub Shares
Meaning
Residual equity portions that remain in the hands of minority investors after a majority acquisition or a corporate restructuring. These stub shares represent the difference between a total buyout and the portion of the company that the buyer chose not to or could not acquire.
Minority Persistence
Holders of these shares maintain their status as equity owners even after the company has been delisted from public exchanges. They continue to possess the same voting rights and dividend entitlements as they held before the majority of the stock was consolidated by the new owner.
Exit Fragment
The liquidity of these holdings is usually very low because there is no longer a public market for the shares. Investors who hold a stub share may find it difficult to sell their position without negotiating a private transaction with the majority owner. This situation often leads to the majority shareholder eventually making a mop up offer to eliminate the administrative costs of managing a small group of minority holders.
The value of these fragments is often tied to the future performance of the private entity or the eventual sale of the entire business to a third party.
Capital Structure
The presence of these shares on the cap table requires the company to maintain a register of members and provide certain corporate disclosures. This remaining equity complicates the process of merging the company into the parent entity or changing its corporate form.