Do you have a Shareholders Agreement?

As a corporate lawyer I am regularly contacted by clients who have come to an impasse with their fellow business partner and looking for a solution in order for them to resolve the matter at hand and move the company and its business forward. My first question is always “do you have a Shareholders Agreement?”.  Whilst I would love for the answer to be yes, more often the response is “no, but it’s on our to do list”.

Without the presence of a Shareholders Agreement, it is difficult for an appropriate way for the impasse to be addressed without litigation, and whilst we have an amazing litigation team at Franklins who can help navigate and resolve your dispute, I am an advocate that prevention is better than cure.

So what is a Shareholders Agreement? This a private agreement between the shareholders of the company binding them to certain provisions protecting their individual interests and that of the company whilst offering a solution to resolve any issues encountered in a clear and amicable way. No two companies are the same, so when I am assisting clients with putting in place shareholders agreements I understand that the agreement needs to be bespoke to the shareholders and the nature of the company, addressing the following points:

• the rights, obligations and restrictions afforded to each of the shareholders;
• the type of business the company can undertake;
• matters which require directors to seek shareholders consent;
• the percentage required in order for a decision and resolution to be approved by the shareholders;
• procedures for dealing with company finances including obtaining financial assistance;
• the dividend procedure;
• the transfer, issue and variation of shares held in company;
• what happens to a shareholder and their shares held in the company if they are made bankrupt, enters into divorce proceedings, they die or they choose to leave the company;
• detailed provisions of an appropriate method for resolving a deadlock between the shareholders and disputes;
• rights of minority shareholders to tag-along with a third party offer to purchase share capital held in the company; and
• rights of majority shareholders to drag-along minority shareholders in a proposed share capital sale to a third party.

Whilst the above-mentioned is not intended to be an exhaustive list of provision which can be covered, the intention of any well-structured Shareholders Agreement is to safeguard against all eventualities.

Now whilst it is not compulsory for a Shareholders Agreement to be entered into by the shareholders, in view of recent unprecedented times it has become more favourable to have one in place in order to protect their individual interest and that of the company.

At Franklins we understand that you want a quick resolution that is also cost effective. We will work with you to provide specialist advice and ensure a full case plan is prepared to outline your options and next steps. Contact the Dispute Resolution Team on 01604 828282 / 01908 660966 or email Litigation@franklins-sols.co.uk.