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Sorting Shareholder Agreements

by fatweb

John Shingleton

Director of Onlinelawyers

During the last six months I have had several longstanding clients ask for advice regarding their company shareholdings.

They all seemed concerned with succession planning and what would happen if one of them died or was permanently disabled.

After their insurance advisor and I reviewed their arrangements, we varied their existing shareholder agreements to include some buy-sell provisions and a process for new shareholders.

A company is by far the best legal vehicle for joint ventures. It is easy to incorporate, as the whole process is done online. However, what is crucial to success is what you agree on behind the scenes. This is where shareholder and buy-sell agreements come into play.

A shareholder agreement will document key arrangements between the shareholders, from governance right down to distribution of dividends.

A shareholder agreement could include arrangements regarding:

  • The company structure and who appoints or removes the directors. This is important as directors make decisions that ultimately affect the value of the shareholding
  • What happens if a shareholder wants to sell their shares. This can be disruptive, so you will want to have a mechanism controlling the sale
  • What happens if you want to bring on new shareholders; you will need a mechanism to make sure the new shareholders are bound by the terms of the agreement
  • Who manages the company and how are shareholders remunerated for their work for the company. By making clear how shareholders are remunerated for their work, separately to any entitlement to a dividend, you can avoid disputes
  • How financial information is accessed by non-director shareholders
  • A policy on payment of dividends. This can be a testy subject between shareholders
  • A policy on repayment of shareholder loans
  • What if the shareholders disagree. In the absence of a mechanism for resolving disputes or agreement, shareholders can end up deadlocked. When that happens, the only way forward is to apply to the High Court.

By making sure your company structure is supported by a comprehensive shareholder agreement, with adequate buy-sell and insurance cover, you can have peace of mind and focus on achieving success.

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