Why you should have a carefully drafted shareholders agreement
We were asked to prepare a number of shareholder agreements for various companies which had been set up between 6 different shareholders all with varying holdings in the different business entities. The main business of the companies was the placement of tradesmen and professionals within the construction industry although this could have been extended to other professions upon agreement by all relevant parties.
As part of one of the shareholder agreements, it became clear that the company needed to have intergroup agreements with some of its other group companies due to the way in which the business had been organised.
We prepared the necessary shareholder agreements and we also prepared the other necessary intergroup agreements between the various group companies.
The issues for resolution when dealing with multiple shareholders centred primarily on the loans made by various shareholder directors to the company and when those would be repaid in addition to the financial controls and framework governing company expenditure.
The shareholders also wanted other matters to be expressly dealt with including the following:
- That each shareholder would have the right to appoint one Director
- Payment of dividends was to be on a monthly basis subject to cash flow
- The agreement of all the shareholders was required for there to be a material change in the business
- Any shareholder leaving the company would have to offer his shares for sale to the remaining shareholders
- In the event of a shareholder wishing to sell the shares would be valued independently (by a person agreeable by all parties)
- There would be no reduction in the value of shares for minority interests
Further, given that these were individual shareholders we also had to cater for what would happen with the shares of a particular shareholder upon his death/bankruptcy.
There were also other agreements which followed from the shareholders including consultancy and directors service agreements which we helped to prepare and put in place.
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