Shareholders Agreements
In my recent Articles called “The Value of Shareholder’s Agreements”, I made the case that in the long run; money spent on a Shareholder’s Agreement may save multiples of that amount if it allowed the parties to avoid the need for the intervention of Courts or mediation. In my article, I outlined how the recent Ward Anderson case highlighted the point well, in that the parties to that dispute had been through two rounds of mediation and a trip to the High Court – none of which is inexpensive!
Many people hear the words “Shareholder’s Agreement” get bandied about without ever really reflecting on what such an Agreement may cover. The principle behind a Shareholder’s Agreement is to provide clear and concise solutions or remedies for events that may occur between the shareholders during the life of that relationship.
In recommending to a client the value of a Shareholder’s Agreement, I typically recommend they ask themselves the following types of questions:
1. What if there is a dispute that interferes with the operation of the company?
2. Have you put money into the company by means of a loan or share capital and is that recorded properly?
3. Are you to get additional shares for money or time spent working in the business prior to incorporation or indeed since incorporation?
4. How can deadlock be resolved were there to be a serious dispute?
5. What happens if an approach is made to buy the company by a third party – will you have a veto over the sale of the business?
6. When can you retire?
7. Will you be obliged to sell your shares if you get sick for an extended period or leave the company either before or at normal retirement age?
8. Who will buy your shares when you retire or leave the company?
9. What will happen your shareholding after you death?
10. Can your spouse / son / daughter succeed to your share in the business upon your retirement and/or death?
11. How would you feel about you fellow shareholder’s family becoming shareholders of the company in similar circumstances?
In respect of this list, what should become immediately apparent is that there is a relatively high degree of likelihood that some of the issues raised are going to be matters of consequence at some stage in the life of at least one of the shareholders in the company. A well drafted Shareholder’s Agreement will provide for clear solutions to the questions posed. Shareholders Agreements are not always simple to put in place as it obliges the shareholders to do something that we all tend to neglect, that is, to think forward about our lives in terms of retirement, succession planning and even death! The agreement you reach with your fellow shareholder or shareholders will greatly impact those outcomes. Like is so often the case, the effort put into it at the start will yield benefits for many years to come.
Fergal McManus
Solicitor
Morgan McManus Solicitors
May 2013