Why You Need a Shareholders Agreement Prepared by a Solicitor?
Have you ever considered entering a business venture with family or friends? Have you ever been invited to subscribe for shares and invest in a company whose future looks promising and bright? If the answer is yes, then you should also consider a shareholders’ agreement to protect your investment.
This is the agreement between the owners of the company to regulate the running and management of the affairs of the company. A solicitor who has in-depth expertise of these agreements will be able to help you get the right agreement in place.
When much needed investment is to be made into a company your bargaining position to negotiate terms to protect your investment is at its strongest. Whether you are a majority, minority or equal shareholders does not matter at this stage. What is important is that an agreement is put into place. Your solicitor for your shareholder agreement can negotiate the best terms for you.
Shareholder agreements are, subject to the Companies Act 2006 (or earlier legislation depending upon when the Company was incorporated) governed by the normal principles of contract law. The parties therefore have great freedom to decide how the affairs of the company will be regulated.
Points for Consideration in a Shareholders Agreement.
- How can new shares be issued?
- How can shares be transferred to third parties?
- What if shares are to be transferred to a competitor can I prevent that?
- What happens if an individual shareholder dies; who will the shares pass to; will I end up with a new shareholder who doesn’t know anything about the business? How can I prevent that?
- What if a good offer is received to purchase the business; can I make the other shareholders sell their shares too (drag along and tag along)?.
Deadlock and or Exit
- What happens if there is a deadlock over decisions?
- If a shareholder wants to exit then how will that be done?
- How will the Company’s shares be valued?
Operational and Management Issues
- Who will be able to appoint and remove directors?
- How will the board of directors make its decisions?
- Which decisions require shareholder approval?
- Voting issues.
- Who will hold the bank mandates and have financial control?
- When will dividends be decided, and be paid?
If a shareholder leaves can we stop him setting up a competing business?
How are disputes to be resolved?
Your solicitor can advise on other points that you may want covered and which are specific to your situation.
We see many cases where the parties set up a business in a hurry. A few months later there is a falling out. It is over those things which the parties simply did not consider at the outset of their relationship. They did not think to consult or speak with a solicitor. Nevertheless, had they considered those issues chances are that a dispute could have been avoided. The situation would have been managed far better and at less expense by having had a shareholder’s agreement in place. And all the bitterness could have been avoided. As solicitors we advise on shareholder disputes which arise from a lack of a shareholders agreement.
It is easier and cheaper to have the shareholders agreement in place at the start than trying to deal with matters at the end when things may not have gone to parties expectations. Speak to a shareholder agreements solicitor today.