Most sub-$3M agencies have two to five principals — a founder plus a junior producer, a married couple, a parent and child, a small producer-partner group — and the governance document was usually drafted for operations, not a sale. When a transaction arrives, three problems surface at once, and any one can stall or kill the deal. Worth fixing before the deal is on the table, because the leverage to fix them evaporates once a buyer is at the door.
§ 01 · The three problemsWhat M&A surfaces.
| Problem | What goes wrong |
|---|---|
| Unanimity | A single dissenting 10% owner can block a $5M transaction |
| Valuation | No defined methodology for an exiting owner → negotiation → litigation |
| Transfer | No restrictions → an outside acquirer of a minority interest gets standing |
The unanimity problem is the most acute: without a drag-along clause, a sale requires unanimous consent, so a single minority owner holds a veto over the whole transaction. The valuation problem turns an exit into a fight because there's no agreed methodology. And the transfer problem means that without restrictions, an outside party who acquires even a minority interest gains information rights, distributions, and disruptive standing. Each is invisible until the deal forces it into the open.
§ 02 · The drag-alongThe threshold that matters.
The drag-along trigger threshold sits at 67–80% of outstanding interests — the sweet spot. A 90% threshold defeats the purpose in a small agency, where any dissenter likely holds at least 10%, so the clause that's supposed to enable a sale instead hands the same veto back. The best-practice drag-along has five elements: a 67% voting trigger, application to any sale or change-of-control, pro-rata indemnification only, minority liability capped at proceeds received, and minority owners excluded from business-specific reps.
The five drag-along elements protect the minority while still enabling the sale — the minority is dragged into the transaction but only on pro-rata indemnification, with liability capped at what they actually received, and they're not forced to verify business-specific reps they can't (those come from the selling control group only). The common governance-document weaknesses that break deals are the mirror of those elements: no drag-along at all (requiring unanimous consent), a too-high threshold (90% defeating the purpose), no pro-rata protection (forcing the minority into non-pro-rata indemnification), and no representation carve-out (requiring the minority to verify reps they can't).
§ 03 · The six provision categoriesAnd eight buy-sell triggers.
A deal-ready governance document covers six provision categories: ownership and capital structure; management and control (decision thresholds, a major-decisions list, deadlock); transfer restrictions and buy-sell; exit mechanics (drag-along, tag-along, preemptive rights); restrictive covenants (non-compete, non-solicit, non-piracy, confidentiality); and dispute resolution (mediation then arbitration). The buy-sell section carries eight triggers in a well-drafted document — death, disability, divorce, bankruptcy, termination of employment, retirement, dispute, and in some cases an underperformance-threshold breach. Internal restrictive-covenant durations run shorter than sale covenants: non-compete one to three years post-ownership, non-solicit one to three years, non-piracy three to five years (covering direct and indirect contact), and confidentiality perpetual for trade secrets.
§ 04 · Deadlock and valuationResolving the stalemate.
Five deadlock-resolution mechanisms handle a governance stalemate: the shotgun (or Texas shootout), where the offering owner names a price both would accept and the receiving owner buys at that price or sells at the same one; Russian roulette, where one names a price and the other chooses to buy or sell; a mediated buyout to an appraised or formula price; a forced sale that auto-lists the agency; and arbitrated resolution, binding on a substantive disagreement but not an ownership change. For a two-owner 50/50 agency, the shotgun clause is typically the right mechanism because it's self-policing — the offering owner must name a price they'd accept on either side. Valuation rests on one of three methodologies: a formula (a multiple of trailing-12 commission or EBITDA, typically around 2.25× revenue per interest), an independent appraisal, or a certificate of agreed-upon value the owners sign annually — and a formula needs review every two to three years, or it drifts from fair market value as the business and the market change.
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Terminology on this shelf
- Drag-along clause
- The provision letting a controlling majority compel a minority into a sale — triggered at 67–80% of interests.
- Unanimity problem
- The default where a sale needs unanimous consent, handing any minority owner a veto.
- Eight buy-sell triggers
- Death, disability, divorce, bankruptcy, termination, retirement, dispute, and underperformance.
- Shotgun clause
- The self-policing deadlock mechanism where the offeror names a price they'd accept on either side.
- Tag-along
- The minority's right to join a majority sale on the same terms — the counterpart to drag-along.
- Certificate of agreed value
- An annually signed owner statement of value — one of three governance valuation methodologies.