How to Structure Voting Rights in a Partial Sale

A partial sale gives a business access to capital, new expertise, and strategic capability without requiring the founder to step away entirely. It is a powerful route to accelerated growth and risk-sharing, but it also introduces a delicate issue: control. Voting rights are at the heart of this. If they are poorly structured, partnership conflicts soon outweigh the benefits of the deal. At Mergers.co.uk, we advise founders and investors on these structures regularly, and one lesson holds true: governance is not an afterthought. It is the backbone of a successful partial sale.

The starting point is distinguishing ownership from control. Many founders assume that selling a minority stake automatically means retaining full decision-making authority. Equally, many investors assume their capital entitles them to significant influence. Both positions are understandable but incomplete. Voting rights must strike a balance that protects the founder’s ability to run the business day-to-day while giving the investor confidence that major strategic decisions cannot proceed without their involvement.

Proportional voting based solely on shareholding is the simplest model, but rarely the most effective. It offers clarity but ignores the realities of operational responsibility. A more robust structure separates routine decisions from reserved matters. Routine decisions — hiring, pricing adjustments, operational processes, supplier changes — should remain under management control. Investors typically do not wish to intervene in the daily running of the company, and doing so only slows progress.

Reserved matters, however, require joint approval. These include issuing new shares, taking on significant debt, appointing or removing key executives, altering dividend policy, large capital expenditure, selling assets, or acquiring another business. Agreeing these matters in advance prevents disputes and ensures both parties remain aligned on issues with long-term impact. It also reassures the investor that their capital is protected, even if they do not hold a majority stake.

Weighted voting can also be used in specific circumstances. For example, if the investor is bringing critical sector experience necessary for expansion, certain decisions may require their enhanced approval. This must be implemented carefully, as it can undermine founder autonomy if overused. The purpose of weighted voting is to recognise expertise, not to shift control unfairly.

Deadlock resolution mechanisms are essential, even in well-aligned partnerships. Disagreements are inevitable. What matters is that they do not stall the business indefinitely. Common approaches include escalation processes, mediation, arbitration, or buy-sell clauses that allow one party to exit if fundamental disagreements cannot be resolved. Without these mechanisms, a partial sale can leave the business paralysed at precisely the time it should be accelerating.

Time horizon is another key factor. Most partial sales anticipate a full exit within five to seven years. Voting structures must therefore be flexible enough to adapt to future investment rounds or changes in shareholding. A structure that works today may be unsuitable as the business grows, new partners join, or the founder’s involvement evolves. Planning for these scenarios early prevents future renegotiation under pressure.

Transparency is critical throughout. Both parties must fully understand their rights, responsibilities, and limitations. Ambiguity around decision-making authority is the fastest way to damage trust. Well-structured documentation, including shareholders’ agreements, board terms of reference, and clear schedules of reserved matters, protects everyone involved. It also provides a stable platform for growth, which is the fundamental purpose of any partial sale.

At its core, voting rights should encourage collaboration, not competition. They should reflect the strengths each party brings to the table, protect the long-term interests of the company, and prevent avoidable conflict. When structured well, a partial sale becomes a strategic partnership that delivers accelerated value creation. When structured poorly, it becomes a power struggle. Governance is the difference.

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