Shareholders Agreements

The rights and obligations of participants in privately owned limited liability companies is usually governed by the company's memorandum and articles of association and by general company law but these often favour those share holders who hold the majority voting rights.

Typically, the Articles of Association will also do little to reflect shareholders expectations on issues such as participation in the running and management of the business and the rights of any person (often a spouse) who may inherit shares in such companies.

They are a crucial document, but also one that you should not have to spend a fortune on getting into place.

At Geoffrey Leaver we have therefore developed a range of shareholders agreements to deal with simple "quasi-partnership" type companies which would typically involve 2 to 5 shareholders who each work full time for the company and participate in its management, through to more complicated agreements between multiple shareholders.

In particular we are careful to ensure that where appropriate the shareholders agreements will cover the following issues:

•   Minority Protection - any shareholder holding less than 51% of the shares in a company is a minority shareholder. We endeavour to identify those issues where minority shareholders need to have greater protection than provided by the articles of association or by company law.

•   Put and Call Options - a shareholders agreement will usually prescribe various circumstances when one of the shareholders can force the other shareholders to purchase his or her shares at a given price, or where one shareholder can be forced to sell his shares to the remaining shareholders (known respectively as "Put" and "Call" options). The most obvious example of where both put and call options are desirable is to cover the situation where one of the shareholders dies (in this respect see our article "Death of a Shareholder") but it is often appropriate to have such options in other circumstances e.g. a call option giving the remaining shareholders the right to purchase shares off one shareholder who has voluntarily resigned from his employment with the company or a put option exercisable by a shareholder who has been unfairly dismissed from his employment with the company.

•   Drag-along and Tag-along provisions - Drag-along provisions are designed to cover the situation where the majority of the shareholders wish to sell their shares to a third party but a minority is blocking that sale. Tag-along provisions are designed to ensure that the majority shareholders do not sell their shares to a third party leaving behind a minority shareholder who then has to deal with a new shareholder that he may not know let alone being someone that he wants to be in business with.

To discuss how we can assist your business please email Tim Roberts or Troy Warner or telephone 01908 692769.