Shareholders Agreements – Planning for the Future

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Setting up a new business is exciting. And if you’re setting it up with friends, family or former colleagues, it can be even more exciting as you share the buzz of getting your new venture off the ground.

It’s likely that the last thing on your mind is the possibility of falling out with your co-founders but in fact, while your new business is in its honeymoon period and (hopefully) you all get on well, that is the exact time you should be thinking about it. Because once you’ve fallen out, it’s too late.

Sadly, we often have to advise shareholders who are in dispute with their fellow shareholders (even where they are close family members) and where there is no Shareholders Agreement or tailored Articles of Association they are often surprised by the default legal position.

For example, if a shareholder abandons the business, you have no default right to get their shares back. Or if there are multiple shareholders, you might find that the other shareholders/directors club together to make very significant decisions you disagree with, or even bring in new shareholders or appoint new directors to the board. You could even find that the other shareholders vote to remove you from the board.

And if there are just two of you with a 50/50 shareholding and no other directors, you could find the entire business grinds to a halt because you are deadlocked with no way of resolving the impasse.

A Shareholders Agreement can cover many areas to give you comfort that, even if you fall out with your shareholders, you will still be able to find a way through the dispute. We always tailor the Agreement to meet your requirements but typical areas will include:

• What happens if a shareholder wants to sell their shares? Usually you’d want them to offer the shares to the other shareholders rather than an unknown third party.
• Are there circumstances where a shareholder should be required to offer their shares for sale? For example, death, bankruptcy, ceasing to be a director/employee.
• How should the shares be valued on a sale? Will you use the company’s accountants to value the shares or a jointly-agreed external valuer? Or do you want to specify a formula?
• What if a third party wants to buy the entire company? If a certain majority want to sell, should you be able to compel all the other shareholders to go along with the sale?
• Where a shareholder is a director, are there circumstances where they should be required to resign? For example, if they’ve effectively abandoned the business and have refused to attend board meetings for months.
• Provided you comply with your obligations, should you have a right to remain on the board (i.e. not be removed by a majority shareholder vote)?
• Are there certain decisions that are so important that they should only be taken if all shareholders agree?
• A mechanism to resolve a deadlock on significant decisions (for example if the board/shareholdings are 50/50).

If you’d like further information about what a Shareholders Agreement could give you, please contact BHW’s corporate and commercial team for more information on 0116 289 7000 or email info@bhwsolicitors.com.