In any case where one or more people decide to form a limited liability company, we will always advise that a shareholder’s agreement should be completed. This document sets out the relationship between shareholders, even where they are related or where they are close friends. We would strongly advise that a shareholder’s agreement is essential because even where the principals are friendly or are related to each other, it is essential that business is conducted professionally and at arm’s length.
When we are taking instructions concerning the preparation of a Shareholder’s Agreement, we will need information in relation to the following matters:
- Who are the shareholders and how much will they be subscribing for their shares?
- Who will be the first directors of the company and how are they to be remunerated, how can they be removed and what provisions govern their retirement, death, sickness etc?
- What is the exact nature of the business of the company and what are its obligations?
- Detailed provisions have to be set out in relation to the transfer of shares and consideration should be given to pre-emption clauses in favour of the remaining shareholders.
- Provision must be made for transfer of shares on death or retirement.
- Provision must be made to deal with shareholders who are in breach of the shareholders’ agreement, particularly if they are in serious breach.
- Provision should be made for intellectual property matters.
- Provision should be made to value shares in the event of any termination provisions particularly if agreement cannot be reached and it is necessary to employ a third party to value shares. This is relevant where a shareholder is departing for any particular reasons, either voluntary or involuntary.
If finance is limited, we can provide you with a template Shareholders Agreement, which you can amend as you see fit. We do however advise all our clients that when you have reviewed and revised our template agreement, you should return to us to make absolutely sure that the agreement is comprehensive and covers all relevant requirements.