I am currently in the process of advising a group of companies regarding the ‘merger’ of their business and one of the key areas (apart from the tax, legal and accounting considerations) that I have advised they give further thought to is putting in place a formal shareholders agreement. A Shareholders’ Agreement is a formal document that contains the rules (as agreed by the shareholders) that the shareholders of the company must abide by. In simple terms a Shareholders’ agreement should provide: • Individual shareholders with an element of protection • A basis for dispute resolution • The procedure for making key decisions • Details on the individual powers of one, or a group, of shareholders
There is no legal requirement for a shareholders’ agreement to be drawn up however I would suggest that most professionals would agree it is best practice and I would recommend that all companies where there is more than one shareholder, even if the other shareholders are family or friends, have an agreement drawn up.
Unfortunately one size does not fit all and any agreement should be fully tailored to the specific circumstances of the company and the shareholders. This said the following are the key points that you should consider including in your agreement.
• Company Name and Registration Details • Initial Shareholders Details • A brief summary of what the business will do • Remuneration Policy • Dividend Policy • Key Decisions • Non Compete, Non Deal and Non Solicitation • Shareholder rights • Right to purchase other shares • Right to sell other shares (and who to) • Basis of Valuation of shares • Provisions should shareholder die • Shareholder protection
Obviously dependant on circumstances there may be other points that your specific business needs to consider and we suggest that you seek professional advice regarding your individual circumstances.
Putting an agreement in place could save time and money should a disagreement occur and in my opinion is the only sensible option.
The above is provided for guidance only and should not be relied upon in any way without first seeking professional advice. Crump Pearce & Co cannot accept any responsibility for any loss however caused as a result of reading this article.
Tim Pearce Director
Crump Pearce & Co Limited Chartered Certified Accountants