Buying out a shareholder in a private limited company

Routes, procedures, and share valuation

A shareholder conflict can completely paralyze a private limited company in a matter of weeks. Decisions get stuck, investments are postponed, and management spends more energy on consultation than on growth. At that stage, the same question often arises: can you buy out a shareholder, or—if things really escalate—even force them to sell their shares?

The short answer is: sometimes. But not “just like that.” Dutch corporate law is based on the private nature of the BV: in principle, shareholders hold their shares for as long as they want. A forced transfer is only possible if you have made prior agreements (in the articles of association or shareholders’ agreement) or if you meet the strict legal conditions of the dispute resolution procedure in Book 2 of the Dutch Civil Code.

First, define the goal clearly: exit, rest, or restart

In practice, we see that entrepreneurs are often too quick to consider legal proceedings. A buyout can serve several purposes:

ending an unworkable partnership;
breaking a deadlock;
protecting the continuity of the business;
securing investment opportunities and financing;
restoring manageability and trust.

Once the objective is clear, it is easier to choose the right instrument: negotiation, mediation, binding advice, or (only if necessary) litigation.

Action point: immediately identify who holds which shares, what voting and profit rights are attached to them, who is a director, and what agreements are already on paper.

Starting point: buyouts usually take place through agreements and negotiations

In most private limited companies, a buyout is achieved when the parties reach agreement on (1) the sale, (2) the price, and (3) the transfer date. That sounds simple, but it is often the valuation and payment structure that make or break the deal.

A well-drafted buyout agreement therefore includes not only a price, but also practical elements such as:

the valuation date (e.g., end of quarter, closing date);
which valuation method applies (multiple, DCF, net asset value, etc.);
adjustments (excess cash, debts, management fees, special items);
guarantees and indemnities;
the payment method (lump sum, installments, earn-out);
securities (pledge, escrow, bank guarantee);
what happens if financing is not forthcoming.

Action point: don’t just negotiate “the price,” but also “how that price becomes affordable and feasible” without emptying the company.

Step 1: check exit provisions in articles of association and shareholders’ agreement

The quickest route to a mandatory sale is usually: pre-agreed exit mechanisms. These can be included in the articles of association, in a shareholders’ agreement, or spread across both documents.

Obligation to offer shares in the event of a change of control or loss of control

Many entrepreneurs operate through a personal holding company. Some arrangements stipulate that a shareholder must offer their shares if they lose control of their holding company, for example through a sale to a third party or the entry of a new (majority) investor.

Quality requirements and “capacity” clauses

In joint ventures and family businesses, you often see a quality requirement: being a shareholder is linked to a certain role or capacity, such as active participation, maintaining a license, or fulfilling a key position. If that capacity expires, an obligation to offer may arise.

Good leaver/bad leaver (director and shareholder)

In management participations, it is common for departure as a director to have consequences for share ownership.

Good leaver: departure by mutual agreement, after an agreed period or due to circumstances such as illness. The price is often in line with market conditions or based on a pre-agreed valuation method.
Bad leaver: departure due to serious culpable conduct or breach of agreements. The price may be (significantly) lower, sometimes approaching nominal value.

These clauses are powerful, but also sensitive: discussions often revolve around the question of who determines whether someone is “good” or “bad” and what evidence is required to prove this.

Drag-along and tag-along in the event of sale to a third party

If a buyer only wants to acquire 100% of the shares, drag/tag agreements can be crucial.

Drag-along (compulsory sale obligation): a qualified majority can oblige a minority to sell along with them.

Tag-along (right of first refusal): a minority may sell along with the majority under the same conditions.

The risk here often lies in the procedure: thresholds, deadlines, notifications, and terms of sale must be followed exactly.

Action point: in the event of a conflict, first have a corporate lawyer perform an “exit scan” on the articles of association and shareholders’ agreement. One missed offer obligation or incorrectly followed procedure can weaken your position.

Step 2: valuation and purchase price – the real breaking point

Many shareholders agree relatively quickly that it is better to part ways. This is followed by the difficult question: what is the share worth?

Why valuation so often escalates

The departing shareholder wants the maximum price and often looks at potential and future growth. The remaining shareholder(s) tend to look at risk, financeability, and liquidity. In the SME sector, the reality of the bank also plays a role: a purchase price must be financeable without causing problems for the company.

Commonly used valuation methods

Agreements may include, for example:

a fixed formula (e.g., EBIT multiple);
a valuation by an independent expert;
a range with a binding “tie-breaker” by a third party.

Note that an overly rigid formula can be unreasonable in special circumstances (large investment, crisis year, exceptional customer loss, etc.).

Payment structure and continuity

A high purchase price can cause liquidity problems for the company, especially if you have to pay from free reserves or if you need working capital for growth. That is why installments, earn-outs, and securities are often just as important as the nominal purchase price.

Action point: always record how you deal with dividend policy, management fees, and financing agreements between the deal and closing. This prevents new disputes in the “interim phase.”

If there are no exit agreements: statutory dispute resolution (Book 2 of the Dutch Civil Code)

Are there no workable exit provisions? Then, in a private limited company, the statutory route is essentially the only option left. This is usually more difficult, slower, and more expensive than a business deal. But sometimes it is the only way to break the deadlock.

Expulsion procedure (forced transfer by the “problem shareholder”)

In the event of expulsion, shareholders demand that a co-shareholder transfer his shares because his behavior is so seriously damaging to the company’s interests that the continuation of his shareholding is no longer tolerable.

Important features in practice:

you need a solid case file: it is about more than just “no confidence”;
the procedure is often two-stage: first the question of whether transfer is ordered, then the valuation;
the turnaround time can be considerable.

Action point: start building your case early: minutes, emails, board and shareholder resolutions, financial effects, and examples of blockages.

Exit procedure (for the “stranded” shareholder)

The mirror route is exit: intended for shareholders who do want to leave but are not being bought out. The key point is that their rights or interests are affected to such an extent that it is unreasonable to allow them to remain shareholders.

This may be the case, for example, in the event of:

– structural exclusion from information;
– dividend policy without reasonable explanation;
– voting down reasonable proposals without offering an alternative;
– deprivation of the role that was the basis for participation.

Here too, the court applies strict criteria and the procedure usually consists of a substantive phase followed by a valuation phase.

Action point: always formulate objections in a businesslike and concrete manner (“which right is being violated, what is the effect, what solution has been offered?”). Emotional emails usually work against you.

Squeeze-out (buyout of a very small minority at 95%)

In special situations, a shareholder or group of shareholders who own virtually all the shares can have the remaining minority shareholders bought out through proceedings before the Enterprise Chamber. This route is particularly relevant if you are close to the 95% threshold.

The idea is that a small minority should not be allowed to block full ownership for an unreasonable period of time, provided that the minority receives a fair price, which is usually determined with the help of a valuation expert.

Action point: are you close to 95% (or are you that small minority)? Have the applicable conditions assessed at an early stage and find out how this affects your negotiating position.

Quick alternatives: binding advice, mediation, and bidding mechanisms

Not every conflict has to end up in court. In many cases, a “business solution” is quicker and cheaper.

Binding advice on the share price

The parties agree that an independent valuation expert (e.g., a registered valuator) will determine the value and that the outcome will be binding. This works well if the main point of contention is the price, not the principle of separation.

Mediation with a legal framework

Mediation can be effective if communication and trust are the problem, but there is room for negotiation. It helps if both parties are assisted by advisors who monitor the legal boundaries.

Texas shoot-out / Russian roulette / Mexican shoot-out

These “bidding mechanisms” can break a deadlock: one party names a price and the other chooses whether to buy or sell at that price. The advantage is speed. The risk is inequality in financial strength or information.

Action point: only use bidding mechanisms with safeguards (financing security, disclosure requirements, clear timelines, and penalties for non-compliance).

Frequently asked questions (what is / when / risks)

What is a shareholder buyout in a private limited company?

A buyout is the (full or partial) acquisition of the shares of a co-shareholder, so that they withdraw and you (or a third party) retain the shares. This usually takes place through negotiation and a purchase agreement.

When can you force a shareholder to sell their shares?

Only if there is a clear basis for doing so: (1) an offer obligation or exit clause in the articles of association/shareholders’ agreement, or (2) a legal procedure such as expulsion. Without a basis, a shareholder can, in principle, remain.

What are the biggest risks in a shareholder conflict?

The main risks are loss of value due to standstill, damaged customer relationships, postponement of investments, departure of personnel, and rising costs due to legal proceedings.

What is the difference between expulsion and withdrawal?

Expulsion is initiated by shareholders who want to get rid of a problematic shareholder. Resignation is initiated by the shareholder who is stuck and wants to leave.

When is expulsion a viable option?

If you can substantiate that the shareholder’s behavior is seriously damaging the company and that continuation is unreasonable. This requires a solid set of facts and evidence.

What are the risks of expulsion proceedings?

Time, costs, and uncertainty. The proceedings may also further sour relations and cause additional damage to the company.

When is withdrawal a realistic option for a minority shareholder?

If there is structural discrimination, for example through information blockades, dividend policy without reasonable grounds, or the actual exclusion of the minority.

What are the risks of a withdrawal procedure?

The court is often critical. Without “extra” compelling circumstances, the claim may fail. In addition, the valuation phase often takes a long time.

What is a good leaver/bad leaver clause?

An arrangement that determines the price a departing director/shareholder receives, depending on the reason and circumstances of departure.

When does a bad leaver discount really work?

Only if the clause is clear (definitions, procedure, evidence) and the facts qualify. Ambiguity almost always leads to discussion.

What is drag-along and when does it apply?

Drag-along is a co-sale obligation: when selling to a third party, a qualified majority can oblige the minority to sell along with them, so that the buyer can acquire 100%.

What is tag-along and why is it important?

Tag-along is a co-sale right for the minority. It prevents a minority shareholder from being left with a new majority shareholder that they did not choose.

Who determines the value of the shares in the event of a conflict?

That depends on your agreements. Without clear agreements, the court will often appoint an expert. In practice, parties regularly opt for binding advice from an independent valuation expert.

When does a dispute arise about the valuation date?

Often as soon as the company grows rapidly (or shrinks). The date can make a difference of thousands of euros. Therefore, determine in advance which date applies.

What are the risks of a “shoot-out” mechanism?

It can be unfair if one party has much more money or better information. Without safeguards, it can lead to a forced outcome that is commercially unfavorable.

When is it wise to engage a corporate lawyer?

As soon as cooperation becomes structurally blocked, in the event of an impending deadlock, in discussions about offer obligations or leaver clauses, or if legal proceedings are being considered. Early advice often prevents costly mistakes and strengthens your negotiating position.

Finally: prevent the conflict from “consuming” the company

Buying out a shareholder is rarely just a legal issue. It is also a financing issue, a governance issue, and often an emotional issue. The sooner you have the rules (articles of association and shareholders’ agreement), the evidence, and the valuation framework in place, the greater the chance of a quick, workable solution.

Would you like to know which route is most promising in your situation—negotiation, invoking an exit clause, binding advice, or legal proceedings? A corporate lawyer can help you determine a strategy, structure a case file, and shape the buyout in such a way that the company can continue to operate.