Probably The Most Important Document Shareholders Have
If there was a way to reduce the risk of fall out and provide an element of certainty in governing the relationship between shareholders of a private company then would it not be worth some serious consideration?
Unfortunately, only a small proportion of shareholders take advantage of the protection that a shareholders’ agreement would afford them, with the majority running the risk of being left in a state of uncertainty in the event of a dispute or should they decide to leave the company at some later date.
A shareholders agreement can be implemented at any point in time and serves to protect each of the directors and shareholders of the company. In particular it acts to redress the balance between minority and majority shareholders and looks to provide clarity in situations where there may be future dispute; working on the principal that prevention is better than cure.
With litigation becoming more prevalent in resolving shareholder disputes the implementation of a shareholders’ agreement at an early stage in a business relationship becomes an attractive option. Dealing with issues such as confidentiality, non competition, day to day restrictions on director and shareholder activities and the valuation of shares on exit, the agreement aims to provide valuable protection as the business grows.
The death of a shareholder may also be a cause for concern. Unless otherwise provided for the shares of a deceased shareholder would transfer to his executors on death which could result in his dependents holding shares in a company that they know little about and the remaining shareholders being forced to share their company with a virtual stranger. A cross option agreement linked to a life policy could provide the solution, with the dependents receiving cash for the shares from the proceeds of the life policies (which have been written in trust) and the remaining shareholders taking control of the deceased’s shares.
If you require any advice on or drafting of commercial / company contracts, please contact our Company Commercial Partner, Umberto Vietri on: 01535 613 678 / firstname.lastname@example.org
Partner, Company and Commercial