Every Friday Dawson Radford Solicitors brings you five expert tips on a business law topic. Nothing too technical, but a chance for you to gain expert knowledge in a subject that interests you.
This week its five expert tips on Shareholders Agreements.
1.Which hat are you wearing?
The owners of a company often play a number of different roles, and have different relationships with the company. We like to keep the provisions relating to their role as shareholders for the Shareholders Agreement, and deal with other relationships, such as directorships and employment in other agreements. When embarking on a Shareholders Agreement, sit down and consider what you do as a Shareholder, as opposed to in your other roles.
2. Who makes the decisions?
On a day to day level the directors of the company are responsible for the management of the company. However, shareholders may have an input in more important decisions. How are these decisions going to be made by shareholders? Are there certain decisions that are so important they need a unanimous vote? Are there circumstances where you would want to adjust the percentage of shareholding to make a decision? This can be particularly important with a deadlock company (where the shareholders shares are owned 50/50) or where there is a minority shareholder.
3. What happens if you fall out?
Many shareholders are surprised to find out that there is no obligation to make somebody sell their shares generally under company law. So, if you have a shareholder that isn’t pulling their weight, or if your relationship breaks down, it can often end up in a battle of wills as to who is going to leave. By setting out in the agreement exactly what would happen in this case, you can ensure a transfer where terms have already been decided, and the mechanism for valuing shares has already been set out.
4. What will happen to my shares if I die?
Not particularly a subject we like to talk about, but transfer of shares in the event of death is an important consideration. Shareholders want to ensure that in the event of death their estate receives the benefit of the value of the company they have helped create. Conversely, Shareholders left in a business after the death of a shareholder want to ensure that those shares end up in the right place. Shares stuck in probate or passed to a distant relative or even a child is not generally an ideal situation.
5. Do your other documents match?
Once you have outlined the terms of your shareholders agreement, it is important to check other documents such as Articles of Association, Directors Service Agreements, and your Will all match up and do not conflict with the provisions of the Shareholders Agreement. Getting everything in line ensures there is no potential for argument or confusion later down the line, particularly when you may not have a voice.
It can be difficult for Shareholders to consider what provisions they might need, particularly if they have never put such an agreement in place. You need an expert solicitor to sit down with you and guide you through the process to help you achieve the best possible arrangement for you and your fellow shareholders. If you’d like to chat about putting an agreement together, then please visit our contact page www.dawsonradford.co.uk/contact or speak with Jo Dawson.
Dawson Radford Solicitors 