Redemption of minority shares in Finland – options in shareholder disputes

A shareholder dispute does not in itself create a right to force another shareholder to sell their shares. In Finland, the principal statutory routes are the redemption of minority shares based on ownership of more than 90% and, in exceptional cases involving abuse, a court-ordered redemption obligation.

If neither legal basis applies, the solution will usually involve a voluntary share sale, negotiation or a mechanism agreed in advance in a shareholders' agreement. A lawyer should assess the legal issues. JTT can support the arrangement through an independent company and share valuation, financial analysis and calculations of the available implementation options.

When can minority shares be redeemed on the basis of ownership above 90%?

Under Chapter 18 of the Finnish Limited Liability Companies Act, a shareholder has the right to redeem the other shareholders' shares when they hold more than nine-tenths, meaning more than 90%, of all shares in the company and the votes carried by those shares. Both requirements – shares and votes – must be met. Exactly 90% is not sufficient.

Correspondingly, a minority shareholder has the right to require such a majority shareholder to redeem their shares. The statutory mechanism is therefore not only a majority shareholder's right to squeeze out minority shares; it also gives the minority shareholder a sell-out right when the statutory conditions are met.

The redemption price is the fair value of the share. The calculation of ownership and control is also subject to the more detailed attribution rules in the Finnish Limited Liability Companies Act, under which the holdings or votes of other parties may count towards the redeemer's position. Any group or control analysis should be considered case by case with a lawyer.

The statutory Chapter 18 procedure should not be confused with a redemption clause in the articles of association. Such a clause generally applies when a share is transferred to a new owner. It is not a general mechanism for resolving an existing dispute between shareholders.

How does the Chapter 18 redemption procedure work?

Disputes concerning the redemption right and redemption price are decided in the statutory arbitration procedure under Chapter 18 of the Finnish Limited Liability Companies Act. In outline, the process has five stages:

The threshold and redemption right are identified. The first step is to establish whether the redeemer holds more than 90% of all shares and votes and whether the other statutory conditions are met.
An application is made to the Central Chamber of Commerce Redemption Board (Keskuskauppakamarin lunastuslautakunta). Either the redeemer or a minority shareholder may apply. Minority shareholders may also submit a joint application.
The arbitral tribunal is appointed. The Redemption Board appoints the arbitrators. Where applicable, the interests of minority shareholders may be represented by a court-appointed representative for minority shareholders, known in Finnish as an uskottu mies, in accordance with the Act.
Evidence and valuation are considered. The parties submit evidence concerning ownership, the redemption right and the value of the shares. Financial evidence may include financial statements, forecasts, valuations and other information affecting the company's value.
The arbitral award is issued and the redemption is implemented. The arbitral tribunal decides whether the redemption right exists and determines the redemption price. The redemption is then implemented in accordance with the Act.

The procedure is legal in nature, and assistance from a lawyer experienced in Finnish company law is usually advisable. Under the statutory default, the redeemer bears the arbitration costs unless the arbitrators find a special reason to order otherwise.

How is the redemption price determined?

Under the Chapter 18 procedure, the starting point for the redemption price is the fair value of the share before the proceedings began, subject to the detailed valuation rules in the Act. The redemption price for minority shares cannot therefore be derived from one universally applicable formula.

A valuation will typically consider the company's financial information, future earning capacity, cash flow, assets and liabilities, and company-specific risks. Depending on the business, relevant methods may include:

an earnings- or cash-flow-based valuation;
multiples based on profit, EBITDA or comparable transactions; and
asset-based value, considering the fair values of assets and liabilities.

Enterprise value must be distinguished from the value of the equity or individual shares. Interest-bearing debt, surplus cash and other adjustments affect the value ultimately attributable to the shares. The method must be appropriate both to the company and to the legal context in which value is being determined.

Minority status alone does not justify applying an automatic “minority discount”. The applicable legal context and the circumstances determine the valuation standard. Read more about JTT's company valuation service and see the practical example in How is a company valued?.

What if the 90% threshold is not met?

If no shareholder holds more than 90% of both the shares and votes, and the conditions for an abuse-of-influence redemption obligation under Chapter 23 of the Finnish Limited Liability Companies Act are not met, there is no general statutory right to force another shareholder to buy or sell shares solely because the owners are in dispute.

Practical alternatives may include:

a voluntary share sale or negotiated buyout;
negotiation or mediation;
a buy-sell or deadlock mechanism in a shareholders' agreement; and
another arrangement permitted by the articles of association and Finnish company law.

A shareholders' agreement may contain a buy-sell or deadlock clause, but whether it applies and can be enforced depends on its wording and the circumstances. A redemption clause in the articles of association generally concerns a transfer of shares to a new owner; it is not a generic tool for resolving an existing shareholder dispute.

A voluntary arrangement may in practice be an M&A transaction, even if only one shareholder's interest is being sold. A lawyer should assess the agreement, articles of association and available legal remedies.

Abuse of influence may exceptionally lead to a redemption obligation

Chapter 23 of the Finnish Limited Liability Companies Act provides an exceptional judicial remedy. On an action brought by another shareholder, a court may order a shareholder to redeem the claimant's shares only if both statutory conditions are met:

the shareholder has intentionally abused their influence in the company by contributing to a decision contrary to the equal treatment principle or to another breach of the Finnish Limited Liability Companies Act or the articles of association; and
the other shareholder's legal protection requires redemption, taking into account the likelihood that the abuse will continue and all other circumstances.

The redemption price is the fair value that the share would have without the abuse of influence.

This is an exceptional court-ordered remedy, not a general right to exit a difficult shareholder relationship. A mere breakdown of trust, personal friction or an ordinary disagreement over the company's direction is not sufficient on its own.

Three questions should be separated in a shareholder dispute

Is there a legal basis for redemption? A lawyer assesses whether Chapter 18 or Chapter 23 applies or whether a shareholders' agreement or another arrangement provides a route forward.
What are the shares worth? An independent valuation helps establish fair value, the material assumptions and the reasons for differences between the parties' positions.
How can the sale or redemption be financed and implemented? Price is only one part of the arrangement. Payment terms, financing, taxation, security and transaction structure affect whether a solution is workable in practice.

Separating these questions helps direct the legal work, financial analysis and negotiations appropriately.

How JTT can help

JTT's role is financial and analytical. We can assist with:

an independent valuation of the company or its shares;
analysis of financial information and sensitivity calculations using alternative assumptions;
calculations concerning price, financing and cash-flow effects where the parties are negotiating a voluntary buyout;
preparation of financial material for legal counsel or arbitration; and
cooperation with the client's lawyer or, where appropriate, JTT's law-firm partner.

JTT does not provide legal advice or legal representation. The redemption right, procedure and agreements should be assessed with legal counsel. You can also explore our corporate transactions services.

Frequently asked questions

Can a majority shareholder force a minority shareholder to sell?

Yes, if the majority shareholder holds more than 90% of all the company's shares and votes and the other conditions in Chapter 18 of the Finnish Limited Liability Companies Act are met. Exactly 90% is not sufficient.

Can a minority shareholder require the redemption of their shares?

Yes. Where another shareholder holds more than 90% of all shares and votes, the minority shareholder has a corresponding right to require the redemption of their shares.

Can a shareholder dispute alone lead to a compulsory redemption?

No. A shareholder dispute, loss of trust or ordinary disagreement does not in itself create a general right to force another shareholder to buy or sell. The right must arise from law or contract, or the parties must agree a voluntary arrangement.

How is the redemption price for minority shares determined?

In the Chapter 18 procedure, the starting point is the fair value of the share before the proceedings began, subject to the Act's detailed rules. Depending on the company, value may be assessed using earnings, cash flows, multiples and asset-based methods.

Who decides a dispute over the redemption right or price?

Under Chapter 18, the dispute is decided by an arbitral tribunal appointed by the Central Chamber of Commerce Redemption Board. An action concerning the abuse-of-influence redemption obligation under Chapter 23 is decided by a court.

Do you need an independent valuation for a shareholder arrangement?

JTT can assess the value of the company or shares, identify the principal value drivers and calculate the arrangement's financial implications. The legal structure, redemption right and procedure are planned with the client's lawyer or, where appropriate, JTT's law-firm partner.

Get in touch to discuss your valuation needs.