Shareholder Representatives in Complex M&A Transactions: Role, Benefits, Key Contractual Provisions, Risk Mitigation

M&A transactions involving fragmented seller groups will often trigger the need for a shareholder representative. These situations include companies with dozens or hundreds of shareholders (e.g. venture capital-backed startups), employee shareholders with varying levels of engagement and sophistication, founders with disparate incentives from investors, family-owned businesses, and companies where no one wants to take on the responsibility or liability of being a shareholder representative. 

M&A agreements often contain terms creating post-merger obligations, including surviving indemnity obligations, "earnouts" in favor of certain classes of selling shareholders, and other issues requiring post-closing administration. To address potential claims that may arise from such post-merger arrangements, selling shareholders typically designate a shareholder representative to handle such claims on their behalf pursuant to specifically delineated rights and duties as defined in the purchase agreement.

The duties, responsibilities, and obligations of a shareholder representative often also include, but are not limited to, negotiating post-closing indemnification claims, approving and managing escrow releases, executing amendments or waivers to the purchase agreement, reviewing and responding to indemnity claims, and handling other post-closing shareholder issues. 

A shareholder representative's legal authority to act on behalf of all shareholders is typically defined in the M&A purchase agreement. Strategic attention to the shareholder representative's rights and duties in various scenarios, including those involving the competing interests of different shareholder classes, can help avoid a number of common post-merger pain points.

Without a central representative, a buyer or escrow agent may receive inconsistent instructions and unauthorized actions or inaction can occur which can increase the likelihood of post-closing disputes and litigation. Using a shareholder representative can help reduce litigation risks and ensure a smooth transition in a merger or acquisition. Professional shareholder representatives in particular can provide objectivity, experience, and valuable administrative (legal, accounting, financial, tax, and other) support to shareholder groups.

Listen as our authoritative panel explores the roles and responsibilities of shareholder representatives and provides guidance on how they can provide needed assistance in a complex M&A deal.

I. Overview: deal structures that trigger the need for a shareholder representative

II. Shareholder representative's roles and responsibilities

III. Legal and practical risks in multi-seller transactions

IV. Benefits of a shareholder representative

V. Key contractual provisions that define the shareholder representative's authority under the purchase agreement

VI. How shareholder representative deals affect pre-litigation resolution and litigation

VII. Lessons from case law and war stories

VIII. Practical considerations for lawyers advising clients

IX. Key takeaways

The panel will address these and other key considerations:

• What types of deal structures trigger the need for a shareholder representative?
• What are the roles and responsibilities of shareholder representatives?
• What are the pros and cons of engaging a professional shareholder representative, and how does their involvement impact a deal?
• How can transaction parties structure their agreements to maximize the benefits of shareholder representative involvement and avoid common post-closing pain points?
• What lessons can be learned from recent cases involving shareholder representatives?