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Mergers & Acquisitions · Authority & Approvals
A purchase agreement is only as good as the authority behind the signatures. Getting the right board, shareholder or member approvals — and handling minority owners fairly — keeps a deal from being challenged after closing.
Authority first
A buyer pays the price to the seller and relies on the seller's promise that the deal was properly authorized. If it was not, an owner who did not consent may later argue the sale is invalid or that the decision-makers breached their duties — a dispute the buyer is pulled into.
That is why approvals are among the first things counsel checks and one of the last things delivered at closing. For closely held New Jersey companies the review is often revealing: share ledgers that were never updated, operating agreements signed by only some members, side agreements giving one owner a veto, or a former partner whose interest was never formally bought out.
Gaps like these — usually surfaced during legal due diligence — are fixable before closing, through ratifying resolutions, corrected records and signed consents. They are far harder to fix after a buyer's lawyer finds them under deadline pressure, and much harder still after a disgruntled owner raises them in litigation.
Approval requirements depend on the entity's governing documents and the applicable statute. The general rules below are a starting point; the actual certificate, bylaws, operating agreement and any shareholder agreement control the analysis.
Approval map
These are general starting points under New Jersey law. Governing documents can and often do change them.
| Seller entity | Sale of substantially all assets | Merger or sale of the entity |
|---|---|---|
| Corporation (N.J.S.A. Title 14A) | Board approval and, generally, a shareholder vote at the threshold set by statute or the certificate of incorporation | Board adopts the plan and shareholders vote; in a stock sale each selling shareholder signs for their own shares |
| LLC (N.J.S.A. 42:2C) | Unless the operating agreement says otherwise, acts outside the ordinary course generally require consent of all members | Default rules generally require member consent; the operating agreement may set a different threshold |
| Partnership | Depends on the partnership agreement; unanimity is a common default for extraordinary acts | Each partner transfers their own interest, subject to the agreement's transfer limits |
The mechanics of statutory mergers — the plan of merger, filings and effective date — are covered on the corporate merger page.
Decision-makers' duties
Directors of a New Jersey corporation owe fiduciary duties of care and loyalty to the corporation, and those duties do not pause during a sale. In practice that means informing themselves about the terms, considering reasonable alternatives, and avoiding decisions driven by personal interests that differ from those of the owners as a whole. LLC managers and managing members owe similar duties under the LLC statute, which the operating agreement may modify within limits.
Conflicts of interest are where these duties most often come up in small deals. An owner who is also getting a lucrative consulting agreement from the buyer, buying the real estate on the side, or rolling equity into the buyer is receiving something other owners are not. That is not improper in itself, but it should be disclosed and approved by the disinterested owners, and the record should show that it was.
Board minutes or written consents that describe what was considered are the best protection. A short, accurate record made at the time is worth far more than a lengthy one reconstructed after a dispute begins.
Minority owners
Appraisal
New Jersey's corporation law gives shareholders who object to certain mergers and asset sales a right, in defined circumstances and subject to exceptions, to demand payment of the fair value of their shares instead of accepting the deal terms. The procedure is strict, and the possibility of a claim should be factored into the timetable.
Contract
A shareholder or operating agreement may let majority owners require minority owners to sell on the same terms, or let minority owners join a sale the majority negotiates. These clauses only work if they are followed precisely — notice, terms and timing.
Fairness
In closely held corporations, a minority shareholder treated unfairly may have statutory remedies under N.J.S.A. 14A:12-7. Structuring a sale so that all owners in the same position are treated alike reduces that risk.
Practical
Many minority objections are really about being surprised. Bringing all owners into the process early — subject to confidentiality — tends to produce smoother approvals.
Closing deliverables
The buyer's own approvals matter too — a seller should ask for the mirror-image documents from an entity buyer.
Owners preparing to sell can work through these issues in advance with a corporate governance review, and owners of corporations should revisit their shareholder agreement before a sale process begins. The broader transaction is outlined on the M&A services hub.
Questions & answers
It depends on the form of the deal. A sale of all or substantially all of a corporation's assets outside the ordinary course, or a merger, generally requires board approval followed by a shareholder vote at the threshold set by statute or the certificate of incorporation. In a stock sale, shareholders sell their own shares, so each seller signs individually, subject to any transfer restrictions.
Look first to the operating agreement, which controls if it addresses the point. If it is silent, New Jersey's LLC statute generally requires the consent of all members for acts outside the ordinary course of the company's activities, which a sale of the business usually is. Many operating agreements set a lower threshold, sometimes with protections for minority members.
Sometimes. If the governing documents or statute require unanimous or supermajority approval, a minority can withhold consent. Even where they cannot block it, objecting shareholders may have appraisal rights in certain transactions, or claims if they are treated unfairly. Drag-along provisions, early communication and equal treatment of similarly situated owners all reduce that risk.
Usually certified approving resolutions, an officer's certificate confirming authority and governing documents, good-standing certificates, an accurate ownership ledger, and any consents required under owner agreements. Buyers ask for these because they prove the person signing could bind the seller. Missing documents are one of the most common causes of last-minute closing delays.
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