Shareholder Agreements

Why is a Shareholder Agreement Essential?

Picture this:

You are a minority shareholder, you are more often than not out-voted by the other shareholders on issues you wish to raise, you want to leave the Company but the Articles prevent you from selling to buyers of your choice or at a price you want except with the other shareholders’ consent who may or may not want to buy your shares themselves but only at their valuation.  Your shares are locked in but you leave and the majority shareholders refuse to vote any dividends for the shares.

A hopeless scenario which could perhaps be improved only by expensive and unnecessary Court proceedings but why wasn’t this all dealt with in a written agreement when entering or forming the Company?

What if a shareholder working in the business goes long-term ill, or unexpectedly wants to leave or becomes mentally or physically unable to carry out his duties or becomes bankrupt or acts against the interests of the Company or worse still, dies?

Are you happy that his or her family with whom you have had no relationship will inherit the shares and start voting on issues in the business and even if you can agree for the sale or purchase of those shares, how are they to be valued and is there a discount for a minority interest and is the Company Accountant [whose loyalty will lie with the ongoing Company and its shareholders] to be trusted to do it and over what period is the sum agreed to be paid and who is entitled to appoint and removing Directors of the business?

As you can see, there is plenty of scope for real frustration, upset and distrust unless all these issues have been discussed at the outset and contained in a Shareholder Agreement which once signed can be put away and effectively forgotten.

You really do owe it to your family to take action to clarify the ‘what if’s?’ in the Company in which you have a shareholding.

Contact Roger Salvetti on 01329 833249