Ad Banner
Advertisement by Open Privilege

The hazards of being shareholders in private firms

Image Credits: UnsplashImage Credits: Unsplash
  • Unlike public markets, private investments lack liquidity, making it difficult for shareholders to cash out without pre-negotiated terms. 
  • Courts rarely force company liquidation unless shareholders prove "unfairness" like bad faith or misconduct by majority owners.
  • Investors should scrutinize shareholder agreements, assess majority owners’ history, and define exit clauses upfront to avoid disputes.

[WORLD] When investing in a private company, it is crucial to understand the terms that will allow you to exit and recover your investment.

Unlike publicly traded companies, exiting a private firm can be far more challenging, particularly if the owners are unwilling to buy back your shares.

The lack of liquidity in private markets poses a significant challenge for investors, as shares cannot easily be sold on a stock exchange. This often forces minority shareholders to rely on negotiated exit strategies, such as buyback clauses or drag-along rights, which should ideally be outlined in the shareholder agreement. Without such provisions, investors may find themselves trapped in a company with no clear exit strategy, even if the company is performing well.

Seeking a court order to liquidate the company is also a difficult and costly process. Courts tend to be extremely cautious about intervening in an ongoing business, and they typically do so only when it is “just and equitable” to do so.

Recent legal trends highlight the importance of documented evidence when addressing shareholder disputes. For example, in a 2023 ruling, the High Court rejected a minority shareholder’s request for liquidation, citing a lack of proof of financial mismanagement. The judge emphasized that mere disagreements over business strategy are not sufficient grounds for winding up a company, underscoring the high threshold for judicial intervention.

In short, it is not enough for minority shareholders to simply express dissatisfaction if they wish to exit. They must provide evidence of "unfairness," such as bad faith or misconduct by the majority owners.

Experts advise potential investors to conduct thorough due diligence not only on the company’s financial health but also on the track record of its majority stakeholders. Past disputes or legal issues involving the company’s founders could serve as warning signs. Additionally, it is prudent to seek legal counsel to draft or review shareholder agreements, ensuring that exit mechanisms and dispute resolution procedures are clearly defined from the outset.

Below are three cases that demonstrate how courts handle shareholder attempts to exit private companies.


Ad Banner
Advertisement by Open Privilege
Investing United States
Image Credits: Unsplash
InvestingMay 3, 2025 at 3:30:00 AM

IRS announces 2026 HSA contribution limits

[UNITED STATES] The IRS on Thursday announced the 2026 contribution limits for Health Savings Accounts (HSAs), which provide triple-tax benefits for medical expenses....

Investing United States
Image Credits: Unsplash
InvestingMay 2, 2025 at 5:30:00 AM

US bonds face new risks

[WORLD] For decades, U.S. Treasury bonds have been held up as the world’s gold standard for safety—a “risk-free” asset underpinning global finance. Yet,...

Investing
Image Credits: Unsplash
InvestingApril 30, 2025 at 10:30:00 PM

Gold rush sparks surge in jewelry and bullion sales

[WORLD] Gold prices have soared in recent weeks, opening a window of opportunity—particularly for those with estate jewelry gathering dust. “We’re seeing more...

Investing United States
Image Credits: Unsplash
InvestingApril 30, 2025 at 10:00:00 PM

Roth conversions gain momentum amid market volatility

[UNITED STATES] As investors navigate market swings triggered by tariff concerns, some are eyeing a potential silver lining: a strategic tax-planning move known...

Economy Singapore
Image Credits: Unsplash
EconomyApril 30, 2025 at 2:30:00 PM

Singapore gold demand hits record high as prices soar

[SINGAPORE] Investor interest in gold remained robust in Singapore during the first quarter of 2025, as bullion prices soared past the US$3,000-per-ounce mark...

Finance United States
Image Credits: Unsplash
FinanceApril 30, 2025 at 8:00:00 AM

Traders brace for Trump’s next 100 days

[UNITED STATES] As President Donald Trump embarks on the next phase of his second term, financial markets are bracing for the impact of...

Investing United States
Image Credits: Unsplash
InvestingApril 30, 2025 at 3:30:00 AM

Weighing the risks of claiming Social Security early

[UNITED STATES] Amid growing concerns about the long-term solvency of Social Security, more Americans are opting to claim retirement benefits early. But financial...

Investing United States
Image Credits: Unsplash
InvestingApril 30, 2025 at 3:00:00 AM

Stock market volatility often signals future gains

[UNITED STATES] Sharp swings in the stock market can be unnerving, but history suggests they often pave the way for significant gains, according...

Investing United States
Image Credits: Unsplash
InvestingApril 26, 2025 at 11:00:00 PM

Warning on risky real estate investment mistakes

[UNITED STATES] Financial expert Suze Orman is raising alarm bells over a common yet potentially costly mistake that many real estate investors make....

Investing Singapore
Image Credits: Unsplash
InvestingApril 26, 2025 at 7:00:00 AM

Singapore expands retail access to private markets

[SINGAPORE] Singapore is poised for a major shift in its investment landscape as regulators consider opening private markets-long the preserve of institutions and...

Investing
Image Credits: Unsplash
InvestingApril 25, 2025 at 5:30:00 AM

Why long-term investing is more uncertain in 2025

[WORLD] Long-term investors are encountering increased volatility and uncertainty in 2025, driven by a confluence of factors including escalating geopolitical tensions, shifting monetary...

Ad Banner
Advertisement by Open Privilege
Load More
Ad Banner
Advertisement by Open Privilege