Darlingtons provide a specialist and highly cost effective service for preparing shareholder's agreements, offering a sensible way to document both day to day rights and responsibilities for shareholders but which also deal with the many contingencies that can and do arise with owning and running limited companies.
What are the benefits of a Shareholder’s agreement?
It is not a legal requirement for a company to have a Shareholders Agreement. So what are the benefits of having an Agreement?
- Avoiding disputes because the parties have already agreed what should happen in certain circumstances – i.e. how to deal with deadlock in the event of equal shareholdings
- To regulate the internal management of the company
- It can be designed to protect minority shareholders
- It can place restrictive covenants on shareholders who leave the company
- It can restrict to whom a shareholder can transfer shares
- A Shareholder's Agreement is a contract between all of the shareholders of a company. Once in place it can only be amended with the agreement of all of the shareholders whereas the company's Articles of Association can be alerted by a 75% majority; this means that the shareholder's Agreement is a better protection for minority shareholders.
- The Shareholders’ Agreement is not a public document registered at Companies House in the same way that the company’s Memorandum and Articles of Association are so internal company management can be kept private with a Shareholders’ Agreement.
What are the usual clauses in a shareholder’s agreement?
- A prohibition or restriction on the transfer of shares. This often includes a right of pre-emption (first option for existing shareholders to buy) before a shareholder can transfer to a third party.
- What should happen on the death or bankruptcy of a shareholder
- How the value of the shares is to be determined, for example whether minority shareholdings should be valued lower
- The activities the company will carry on
- Any agreed exit route and timescales
- Any company dividend policy (ie the proportion of profits to be paid out as dividend and the proportion to be retained to fund the business).
- The make up of the board of directors and senior management team, their remuneration and other terms of employment.
- Levels of borrowing
- Future funding
Other parts of the agreement often provide that important decisions, whether or not they would ordinarily be taken by the directors or the shareholders, cannot be made unless all shareholders agree to them - so minority shareholders can veto them. Typically, these include decisions to:
- Issue further share capital
- Change the company's articles of association.
- Buy or sell a business, or other assets over a certain value
- Buy or sell a significant stake in another company.
- Acquire or dispose of any premises
- Appoint or remove a director
- Award directors or employees more than a certain value of remuneration, and/or dismiss a director or employee earning more than that remuneration.
- Borrow above a certain level, or grant security over the company's assets.
- Incur capital or hire purchase commitments above a certain level.
- Take out or vary insurance other than for full replacement value.
- Buy any of the company's shares back from a shareholder
- Take action to wind the company up
Please get in touch with us to discuss your requirements or for a fixed fee quote for preparing a bespoke shareholder agreement.