A risk is increasingly visible in Estonian company sales: a single minority shareholder can block an entire transaction. If 95% of shareholders agree to a sale but the remaining 5% refuse, this may be a flaw in the contractual structure rather than simply a clash of personalities. Investors assess risks, and a fragmented ownership structure is a risk.
The same scenario recurs. The company has grown, funds and founders are ready to exit and a binding offer is on the table. Then an early employee or passive investor refuses to participate, not necessarily because of the price, but because they can stop the process. The buyer does not want an ownership structure that may generate disputes after closing. Frequently, the deal falls through.
Why has this risk increased?
In 2024–2026, exits have become more complex. Capital is more expensive, buyers are cautious and transaction structures receive closer legal scrutiny. Risks that could previously be dealt with later are now unacceptable. Promises made during fundraising and politely worded shareholders' agreements are no longer enough.
A drag-along right or obligation is therefore a central risk management tool, rather than a formal clause. The question is whether it can actually be enforced.
Underwater exits and difficult decisions
Additional tension arises in underwater exits. If the sale price is below the investors' liquidation preference, all proceeds go to investors and ordinary shareholders receive nothing. Why would a minority shareholder agree to sell without any direct financial benefit?
International practice accepts such transactions only where the board can convincingly show that it was the best available solution and the alternatives were worse. Drag-along is not an automatic justification; it is a decision that must be defended.
Acqui-hires and hidden value
Another recurring issue is an acqui-hire: an acquisition focused on taking over employees. A nominal price is paid for shares, while key employees receive substantial joining or retention bonuses. A passive minority shareholder may view this as transferring value from shares to salaries.
The dispute then concerns the transaction's good faith rather than its price. Such disputes make investors cautious or lead them to withdraw.
Formal requirements as leverage: the Estonian context
In Estonia, the formal requirements for share transfers add tension. Historically, notarisation gave minority shareholders substantial leverage. Where notarisation is required, simply failing to attend can sometimes derail the deal.
The law allows the articles of association to waive notarisation so transfers can be made by an agreement in simple written form. This gives majority shareholders and investors more flexibility and reduces procedural hostage situations.
Why a power of attorney is not enough
When notarisation is waived, parties often seek to manage the risk with a power of attorney authorising someone to sell on the minority shareholder's behalf. Estonian law does not allow representation authority to be locked in completely. Even a supposedly irrevocable authorisation may be revoked and disputed.
Investors therefore assess the worst-case scenario rather than goodwill.
Why trust is not an exit strategy, but a contractual penalty can help
Trust is valuable in business but an unreliable foundation for legal architecture. Hoping that a minority shareholder will behave reasonably or morally at a critical moment is a strategic risk, not an exit plan.
In my view, an effective solution is economic and structural, rather than moral.
If blocking a transaction is effectively free or emotionally rewarding, it may happen. Without clear boundaries, resistance and disruption become possible. Vague expectations of good faith must be supported by concrete economic incentives.
A shareholders' agreement is a risk management tool. A clear, sufficiently substantial contractual penalty—for example, €1,000 for each calendar day a shareholder delays the declarations required to perform a drag-along obligation—changes the calculation. The Supreme Court has noted that contractual penalties can pressure a party to perform, in addition to their compensatory function.
When inaction or obstruction carries a predictable and growing daily cost, the incentive to hold out diminishes.
Conclusion
The question is not whether conflict will arise, but when. If the shareholders' agreement assumes everyone will behave reasonably at a critical moment, the risk is already built in. In 2026, an enforceable drag-along arrangement is a condition for a successful transaction, rather than a legal formality.