10.3 Third Party as a Source of Remuneration 343or few controlling shareholders. Joint-ventures typically raise difficult questions of
exit. In some cases the sale of shares to a third party is based on mandatory provi-
sions of law (squeeze-out right, sell-out right).
Conversion of shares, consideration other than in cash. Instead of a clean exit,
the buyer may offer a share exchange. Share exchanges are common in corporate
takeovers and in public takeover bids.
Mergers and divisions. Usually, the target company will, at least in the short-
term, survive the exit of the shareholder. Formal mergers and divisions provide a
particular form of exit. Depending on the role of the company, the company will
either survive the transaction or expire.
In a merger, shareholders of a non-surviving company can receive considera-
tion in cash and/or consideration other than in cash. Typically, non-cash consid-
eration consists of shares in a participating company that will survive the merger.
Divisions are governed by roughly similar rules.
Business acquisitions. Business acquisitions can be effected through the sale of
a substantial number of shares issued by the company. Business acquisitions tend
to raise most questions of corporate finance law simultaneously. For this reason,
business acquisitions will be discussed in detail in Chapters 11–20 of this book.
10.3.2 Clean Exit, Private Sale, Auction, IPO, Bids
General Remarks
The sale of existing shares for cash is one of the most common forms of exit. The
shares of privately-owned companies can be sold and bought privately. A particu-
lar form of private sale is sale through auction. Even an IPO or another form of
public offering can be used. Whereas an IPO is initiated by the seller, a public
takeover bid is initiated by the buyer.
In Anglo-American jurisdictions, disclosure of information to shareholders and
freedom to sell shares have been the two most important traditional corporate gov-
ernance tools relied on by investors in listed companies.
Transferability. The sale of shares is made easier by the transferability of
shares. Shares that are admitted to trading on a regulated market must be freely
negotiable. There can be restrictions on the sale of shares in privately-owned
companies depending on the company form (see Chapter 18 on takeover de-
fences).
Spin-offs, divisions. The sale of shares can be preceded by incorporation in
connection with a spin-off or a division (section 10.4.4).
Sole owner. A sole shareholder such as a private-equity firm can exit the firm in
different ways.
The traditional way for a private-equity firm to cash in the investment is
through a trade sale, a management buy-out, or an initial public offering (IPO).
Sometimes they can nevertheless be difficult to arrange (adverse market condi-
tions), and it can be equally difficult for other private-equity firms to find new
companies to buy (excess liquidity in the market). It is therefore not uncommon