Shareholder and Partnership Agreements
If you are going into business with another person or persons, you might need a shareholders' agreement or partnership arrangement to make sure you get a fair return for your financial or non-financial investment.
A shareholders agreement is a contract between the shareholders (and, usually, the company as well) which governs the relationship between the shareholders and places some element of control over the day to day business of the company. A shareholders agreement will commonly provide for the following:
Restrictions on shareholders selling their shares.
The ability to force certain shareholders to sell their shares to the others. This can be useful if there is a shareholder who is not “pulling his weight”, commits some wrongdoing, or in the event of the death or bankruptcy of a shareholder.
Determination of the correct price to be paid for shares should a shareholder wish (or be forced) to leave the company.
Restrictions on the issue of new shares.
Rights of shareholders to nominate a director of the company.
Restrictions on the way the company does business, for example in the spending of large sums or committing to big contracts, or employing staff on excessive salaries.
Restrictions on what shareholders may do outside the company.
If there is no shareholders agreement in place, for as long as shareholders agree with the way the company’s affairs are managed and are happy with the relationships between themselves and the company, then no problems are likely to occur. However, when these matters break down, there is little in the general law than can be of much help – often the solution is drastic and results in the company ceasing to exist, or the shareholders engaging in lengthy and expensive legal battles. While a shareholders agreement cannot prevent every dispute, they can be a very useful tool in avoiding and managing such difficulties.
Our Commercial team are very experienced in advising on and preparing shareholders agreements.