Shareholders RightsWe will be happy to discuss putting a “shareholders’ agreement” in place.”
A “shareholders’ agreement” is an important document that governs on how a company should run, various rights and obligations of shareholders.
Unlike company articles that are filed for public access, a “shareholders’ agreement” may remain confidential (subject to few exceptions).
We will be happy to discuss putting a “shareholders’ agreement” in place, or update your articles of association, please get in contact us.
There are various reasons to put a “shareholders’ agreement” in place, some of these include:
Company Acquisition: “Shareholders’ agreement” may prevent issues during company acquisition, should a shareholder refuse to sell his shares with others. This risk can be removed with a “shareholders’ agreement” .
Enhancing minority shareholder: The powers of minority shareholders granted under the Companies Act can be enhanced with a “shareholders’ agreement”. In effect, the “shareholders’ agreement” can overwrite the Companies Act or the articles of association to give minority shareholders more rights to all or any of the dividends, voting or capital.
Manage company directors: should there be a need if a director is not performing and his involvement is damaging the business commercially, a “shareholders’ agreement” could assist to speed up removal and replacement.
Dilution: If you have not taken measures to secure your position contractually with the other shareholders, investments in shares can be diluted without your consent. Directors and shareholders need to carefully assess dilution and balance capital preservation against using new share capital for financing.
Shareholders activities: A shareholder does not owe other shareholders any fiduciary duties. This implies that a shareholder may abuse his position no restrictions on limitations are placed by a “shareholders’ agreement”.
Length of restrictions: Length of time after ceasing to be a shareholder may not compliment the business needs. But restrictions on periods of up to two years are not uncommon but time may vary from business to business.
Pricing the shares on transfer before exit: The value paid on the sale of shares in a private company where there is no comparable market value is difficult to estimate.
Company buy back: Buying back shares from a departing shareholder may be tax-efficient for the company. The acquired shares are cancelled and the proportion of shares owned by current shareholders is increased. The buy back is financed from funds that are available.
Put and call options over shares: The “shareholders’ agreement” offers flexibility for the parties to generate options over shares. Three of the popular options below are listed:
A shareholder is given a Call option by the company to issue further shares, i.e. more shares or the company or a shareholder(s) can use the Call option on another shareholder to buy more shares. The “shareholders’ agreement” shall determine when Call option can be exercised.
A shareholder can use Put option to force a shareholder to sell shares. The condition in the “shareholders’ agreement” to use Put option is usually by share price or fair value determined by expert.
Given the equal percentage of shareholding may give rise to circumstances which may lead to a deadlock. To avoid such issues a robust dispute resolution clause that would allow either:
A “shareholders’ agreement” can iron out issues before they arise by setting up a clear structure. A Shareholders Deadlock happens between shareholders and directors in any aspects, but commonly seen when two opposing shareholders with equal 50% shareholding rights are unable to come to an agreement.
In circumstances where there are no “shareholders’ agreement” and amended terms to avoid a Deadlock, it can potentially give rise to a number of issues which can potentially bring a business to a halt.
Ashton Birch “shareholders’ agreement” team is experienced and can review or prepare documents suitable to address Shareholders Deadlock. Please contact us to discuss in confidence.
Shareholders Deadlock
A potential useful alternative for avoiding a Deadlock is by including workable alternatives of dispute resolution provisions of mediation and negotiations.
In most circumstances matters are resolved without the need of addressing it through a court. However, a court process can be initiated by applying to force shareholders to buy the other shareholder out, winding up of the company, de-merger or splitting business or share buyback. There are possibilities of additional claims of unfair prejudice and quasi partnership.
Ashton Birch commercial litigation team can assist you with likely claims or defend your position with an aim of finding early resolution.
Ashton Birch specialise in shareholder rights and deadlock resolution and can assist with advising on appropriate steps to protect your interests should you face a potential dispute. Please contact us to discuss your matter in confidence.
A “shareholders’ agreement” is put in place with all or some of the shareholders, it helps regulate the relationship of shareholders with the company. An absence of a “shareholders’ agreement” may potentially result in disagreement and disputes, which are addressed in provisions to pre-empt such issues with appropriate dispute resolution provisions.
A “shareholders’ agreement” could also be used as a tool to regulate company affairs privately, unlike articles that are available to the public.
Ashton Birch “shareholders’ agreement” team is experienced and can review or prepare an agreement. Please contact us to discuss your requirements and timelines.
“Shareholders’ Agreement” Solicitors
The articles of association of a company is one of the two important documents that oversee the running of the company. The articles set out the rules on how a company will operate, which includes setting up types of shares, powers, and procedures. The articles may prevent events from happening and the “shareholders’ agreement” provides a contractual remedy.
A “shareholders’ agreement” can be used to prevent disputes and blocking transaction by including formulas for share valuation and provisions that prevent refusal to sell shares or enhancing the power of minority shareholders. As an example, a minority shareholder may get additional rights under a “shareholders’ agreement” towards its dividends, voting or capital rights to that given under the Companies Act.
A few common issues not having a “shareholders’ agreement”:
Ashton Birch solicitors can tailor legal costs to your individual requirements by providing you bespoke solutions without legal jargon. Our solicitors will be happy to discuss review or put in place a “shareholders’ agreement” appropriate for your requirements, Contact us by phone or email.
A “shareholders’ agreement” can be used to enhance rights or protect a minority shareholder. A minority shareholder is anyone who holds less than 50% shares or equal shareholding of an issued capital of a company.
In a private limited company, there are fewer shareholders who generally have limited or no option to sell the shares. It is more likely that the company is controlled by a few majority shareholders and an unhappy shareholder has limited options, which may result in abuse of powers by the majority. There are remedies under the Companies Act to prevent such abuse but this can be costly and can be easily prevented with a well structured “shareholders’ agreement” and amended articles suitable to protect minority shareholders.
Ashton Birch solicitors specialise in providing solutions for protecting minority shareholders rights. Please contact us to discuss your matter in confidence.
Minority shareholders
A number of issues facing minority shareholders can be addressed by taking steps at the outset, this will also avoid disputes before they arise. It can be potentially costly to protect rights in the absence of appropriate safeguards.
A few aspects that can assist in protecting minority shareholders rights:
Ashton Birch specialise in minority shareholder rights and can assist with reviewing and putting in place appropriate documents. Please contact us to discuss your matter in confidence.