For limited companies, when it comes to making decisions, company law states shareholders who own more than 50% can pass a motion at a company meeting regardless of the views of other shareholders and if shareholder(s) owns more than 75% of the shares they control the company outright and can veto the decisions of all other shareholders.
This may not suit all business situations, especially where you have two or more founders holding equal share capital or a group of owners with varying amounts of capital, some of whom are directors and some who are not.
A shareholders’ agreement is entered into between all or some of the shareholders in a company. It regulates the relationship between the shareholders, the management of the company, ownership of the shares and the protection of the shareholders. They also govern the way in which the company is run.
A shareholders’ agreement can help define how a business makes decisions to the benefit of all owners and is recommended where:
- A small number of owners want to reach collective and fair decisions for the benefit of all
- Some owners may want to be able to influence decisions that are particularly relevant to them
- Some shareholders may not be directors and cannot influence operations on a day-to-day basis
An agreement can provide for many eventualities including the financing of a company, the management of a company, the procedure on a transfer of shares and deadlock situations. The absence of an agreement opens up the potential for disputes and disagreements between the shareholders.
Key areas for any shareholder agreement
This is not a comprehensive list as each situation is different, but it may help you collect the thoughts of all shareholders before an agreement is drawn up.
- Equity split of shareholders
- Parties to the agreement
- Shareholders rights, obligations and commitments
- Decision making processes on major issues, required voting majorities and day to day operating decisions
- Restrictions on the sale of shares
- Rights of first refusal and pre-emptive rights to acquire shares on leaving, retirement, death or disability
- Death, disability and other retirement compensation payments
- Management contracts, director approval and remuneration amounts
- Insurance and other protective requirements
- Dispute resolution
- Changes to and termination of the agreement
- Buy out provisions for leaving shareholders
Our view is that a shareholders’ agreement is an important document and an equitably drafted agreement should provide comfort to all parties to the agreement.
Please talk to us if you need help in planning for an agreement, especially where there are several shareholders, a new company is being formed, a shareholder wants to sell their shares or pass them to their children, someone is nearing retirement, or the company has borrowed money from a shareholder. We can also liaise with your company solicitor to ensure the appropriate instructions are properly documented in a shareholders’ agreement.
If you need further information regarding this matter please email info@thomsoncooper.com.
Thomson Cooper www.thomsoncooper.com
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22 Stafford Street, Edinburgh Tel 0131 226 2233