If the relationship between you and your shareholders has shifted somewhat, and so you want to either end your relationship with them or work hard to resolve the issues you are having, a shareholders’ agreement could be just the thing you need to ensure as minimal repercussions as possible.
A shareholders’ agreement is a legal arrangement among a company’s shareholders that outlines how the company should be operated. The agreement should detail the shareholders’ rights and obligations.
Jo Haigh, Founder and Chairman of fds, shares her thoughts on why a shareholders’ agreement could be the answer you are looking for when you experience a shareholder dispute.
When a Shareholder Agreement May Be Required
The relationship between shareholders is like that of a family. Therefore, there are bound to be disagreements. If you have taken the advice of fds and have a shareholders’ agreement in place, there will be set processes to deal with a shareholder dispute.
What happens if one of you wants to leave because you can no longer tolerate it? Or simply want to retire? If you haven’t got a shareholder agreement in place, this will come down to a negotiation. This can be a very painful process, akin to a divorce.
Ultimately, individuals tend to fixate on the here and now, and the bigger picture seems to get lost. It is of the utmost importance to have a pre-agreed process in place to deal with shareholder disputes. All disputes can be resolved, but sometimes, a ‘divorce’ is needed to do this.
Importance of a Shareholder Agreement
A shareholders’ agreement protects the interests of all shareholders by clearly outlining their rights, responsibilities and expectations. Without a shareholders’ agreement in place, even the most promising business ventures or opportunities can face costly disputes or uncertainty during critical moments. These moments could include situations where a shareholder wants to exit, transfer shares or resolve disagreements.
A well-drafted agreement that covers all bases ensures alignment and mutual understanding among shareholders. It provides an agreed approach for conflict resolution and offers clarity on decision-making processes. Ultimately, a shareholders’ agreement is a strategic tool designed to protect the future of your business and encourage lasting stability and trust among shareholders.
Examples of What Can Be Included in a Shareholder Agreement
Key clauses that are often covered in a shareholder’s agreement can include:
- Share Ownership and Transfer – This includes rules and conditions for shares.
- Governance – This includes the responsibilities of management and processes for decisions.
- Reserved Matters – This includes certain decisions or actions that a company cannot undertake without receiving previous approval from the appointed authority- for example, the board of directors or shareholders.
- Deadlock Arrangements – This aims to resolve ostensibly irreconcilable conflicts, thereby enabling the daily operations of the business to operate normally.
While there are aspects of a shareholder’s agreement that are frequently found within the document, the agreement should always be tailored to solve the specific requirements of your business to maximise its effectiveness.
Common Scenarios Leading to Disputes
Even in the most collaborative and tight-knit business environments (including those of family businesses), shareholder disputes can unexpectedly arise. One of the most common causes is the vague distribution of responsibilities within a business, where shareholders have differing expectations about their involvement, role or authority within the company.
Disagreements can also emerge regarding the financial aspects of a business. This can be in relation to share transfers, dividend policies and profit distribution. A more overarching business issue that may arise is due to a deadlock situation. This is where shareholders are divided on key decisions, therefore hindering progress and raising tensions.
A shareholders’ agreement aims to anticipate the above scenarios, as well as any other possible scenario of conflict, and provides structured solutions to help prevent disputes before they escalate.
How can fds help?
With a wealth of experience in this area, fds is well-equipped to assist you with your shareholders’ agreement questions. If you would like further information on the services fds provides regarding shareholder disputes, please contact us for a confidential discussion.