Expert View
GETTING YOUR TRANSFER
POLICY RIGHT by Jodi Oosthuizen, Corporate solicitor, Farleys
When it comes to shareholders’ agreements, unless provision is made to the contrary in the agreement or in a company’s articles of association, a shareholder of a company will be free to transfer their shares to whoever they wish without first seeking consent of, or offering them to, the other shareholders.
It is therefore vital to discuss rights and restriction clauses with your solicitor when shareholders’ agreements are being drafted. Provisions can be made for a number of circumstances including:
Pre-emption – giving existing shareholders the first right of refusal on any share transfer.
Automatic transfer – allowing shares to be transferred automatically to other
“These can then escalate into significant legal matters. These can be both costly and have a serious impact on the business itself.”
Steve Bell, corporate finance director at Pierce Accountants, says shareholders’ agreements are not a legal requirement in the UK. And while they are commonplace in private equity and venture capital transactions, he adds they are “rarely seen” in private companies.
However, he adds: “While it may never be used, the shareholders’ agreement protects each shareholder from any unwanted ‘What-if’ scenarios and is an essential tool for business.”
They also usually include the process for resolving disputes between shareholders. Steve says: “We have seen numerous cases where disagreements that could have been clarified through a shareholders’ agreement have led to lengthy and costly legal disputes.”
He adds: “A well-drafted shareholders’ agreement should reflect the needs and goals of the company and its shareholders and should provide a clear and comprehensive framework for managing the company’s affairs.”
Steve says contents of what is a “binding document” commonly include provisions relating to both shareholding rights and obligations and decision making.
Issues addressed include the right to receive dividends and whether there is a specific dividend policy, or if this is left to the company’s directors.
Steve Bell LANCASHIREBUSINES SV
IEW.CO.UK
shareholders if someone leaves as a director and/or an employee or if someone dies, instead of the shares going to the estate of the deceased.
‘Drag’ along - allowing the majority shareholders to force the minority shareholders to sell their shares to a third- party buyer. As a buyer typically wants 100 per cent of the shares if they are acquiring the company, this type of provision prevents the minority shareholders stopping a potential exit.
It is often beneficial to include these provisions in shareholders’ agreements in addition to the company’s articles, because shareholders’ agreements are private contracts between the shareholders, and it would offer additional contractual remedies in case of a breach.
Agreements may also focus on the price at which shares can be sold, whether that’s a “fixed formula” or “market value” defined by an expert.
The agreement can also be used to protect the company’s trade secrets and prevent shareholders from competing when they leave the business.
When it comes to decision making, it can establish the roles and responsibilities of the company’s management and the powers that can be delegated to them.
Steven says agreements provide a framework for decision-making, for instance addressing whether decisions can be made by a simple majority of the shareholders or if certain decisions need a unanimous vote.
He adds: “Minority shareholders may be vulnerable to being overruled by the majority shareholders. A shareholder’s agreement can include provisions to protect minority shareholders’ interests, such as requiring a certain percentage of shareholder approval for major decisions.”
Running a business isn’t always
straightforward...
...but we believe the law should be
Whatever challenges this year throws at you, Farleys are here to help with down to earth legal advice tailored for you.
Our award-winning services include:
- Business Sales/Purchases - Business Start-Ups - Commercial Contracts - Corporate Insolvency - Commercial Litigation - Commercial Property - Corporate Law - Debt Recovery - Employment Law - Fraud and Business Crime - Sports Law
Blackburn - Shadsworth Business Park Manchester - 196 Deansgate Preston - Winckley Square
01254 367 891
Farleys. Making sense of commercial law
www.farleys.com
57
LEGAL VIEW
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80
