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LEGAL VIEW
IN ASSOCIATION WITH:
WHEN THINGS UNRAVEL
by Ged Henderson
Hit TV show Succession continues to make the headlines as the fictional Roy family continue to fight its bitter boardroom battles on the small screen.
It makes for gripping viewing but what of real life? How do businesses avoid the kind of arguments and disagreements that can quickly lead to the destruction of a company.
The fallout from a fallout can be terminal for any business and that’s where a shareholders’ agreement can be vital, according to the experts.
David Herd, group director of Champion Accountants, puts the measure into context. He says: “Shareholders’ agreements can often be thought of like a prenup.”
And, while like a wedding prenup the hope is it sits in the bottom draw of a desk never to be used, the document becomes important in the event of a fallout.
David says: “It is a legally binding private contract between two or more shareholders that governs how a business is managed and run, but more importantly, what should happen if things go wrong.
“While there are no statutory requirements for shareholders to enter into a shareholders’ agreement, we strongly recommend devising one for those companies with multiple shareholders, be it family members or non- connected individuals.
“They’re also useful in scenarios where founder shareholders decide to introduce an additional shareholder.”
David says that a well-written agreement should include exit strategies in the event that one – or several – shareholders can no longer be in business together.
He adds: “Perhaps there’s been a fallout, one shareholder falls ill or passes away, or simply when a shareholder wishes to exit.
“They’re all scenarios, which can – and often – happen, and drafting such clauses from the get- go can eliminate long, drawn out and expensive negotiations further down the line, not to mention hurt feelings and soured relationships.”
Tim Mills, corporate finance partner at Azets, agrees and stresses the important role that the document can play. He says: “Shareholders’ agreements must never be considered a ‘nice to have’, they should be prepared and agreed at the earliest opportunity.
David Herd “In simple terms, a shareholders’ agreement
outlines how the company is to be operated and sets out the rights and obligations of the shareholders.”
Tim Mills
Tim says that although all agreements differ to vary degrees, they should all contain certain elements relating to specific key issues.
He explains they should address the board of directors, including how many directors there can be and how are they appointed or removed, what shares can be held and by whom, how shares are valued when sold or acquired and how to deal with shareholder disputes and minority protection.
Tim warns: “If a shareholders’ agreement is not in place with some or all these included, there is a significant risk that simple issues cannot be resolved in line with pre-agreed terms.
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