The shareholder exit is an event which will occur at some point in the future of any company, whether it’s when the founder retires or simply moves on to other projects. For start-ups there are a few different shareholder exit strategies that can be considered.
3 Common Shareholder Exit Strategies
It is important to have a clear vision of how and when a ‘shareholder exit’ may occur. These factors will affect items such as; any offering materials provided to investors, corporate by-laws, and shareholder agreements.
The company itself may ‘buyback’ the shares of the founder. This is sometimes referred to as a share redemption.
Initial Public Offering
An Initial public offering (IPO) occurs and all privately held shares get converted to publicly traded shares. This means that the investment is now liquid and can be held or traded at each individual’s discretion.
A third-party, such as a larger multi-national company can be approached, or offer to buy the company, at which time a sale price for the shares would be negotiated. Sometimes this will be a cash deal, at other times, the shareholders will trade shares in the business the currently hold, for shares in the business of the purchaser.