Essential guide

SHAREHOLDERS’ AGREEMENT

CATHERINE GANNON

What is a Shareholders’ Agreement?

What happens if you do not have one?

What goes in one?

Practical considerations

What we will cover

An agreement between some or all of the

shareholders

Part of the constitution of the company

A private document

But is it needed?

What is a Shareholders’

Agreement?

Private Equity Investors

Angel Investors

Joint Venture Partners

Employee Shareholders

Founders

Who would want a Shareholders’

Agreement?

Main benefit

Wants to leave?

Wants to sell their shares?

Stops turning up for work?

Wants to sell out and the other does not?

Answer: Nothing

What happens if a shareholder

Question:

James and Bond set up in business. What

happens if James finds something more

interesting he wants his cash back and

works elsewhere?

Without

a shareholders’ agreement

Just and equitable winding up

Unfair prejudice claims

Derivative claims

Claim for breach of directors’ duties

What rights exist in law?

Restrictive covenants

Veto rights

Transfers of shares

Exit provisions

Deadlock provisions

With

shareholders’ agreement

Information rights

Funding

IP

With

shareholders’ agreement

What is the problem?

Company

Inventor

Investor

Intellectual Property

Board papers

Management accounts

Audited accounts

Ability to request information

Information rights

Any obligation?

If not where from?

Dividends

EIS/SEIS

Funding

Poaching of staff

Poaching of suppliers

Poaching of clients

Poaching of potential clients

Non-dealing

Restrictive covenants

Question:

David Niven has joined a competing business

taking key staff, clients and business plans. What

can you do?

Restrictive covenants

Question:

Daniel and Craig set up in business. Daniel

invests and Craig does not.

What veto rights should Daniel consider?

Veto rights

Borrowing money

Issuing new shares

Unusual transactions

Connected party transactions

Joint ventures and partnerships

Veto rights

Transfers of shares to be allowed at all?

Pre-emption rights (first refusal)

Compulsory transfers

Timing of payment for shares

Good leaver/bad leaver provisions

Transfer of shares

Share valuation provisions

willing buyer/willing seller

Discount for minority

Impact of shareholders leaving

Impact of share rights on valuation

Formula valuation

Valuation of shares

Question:

Roger wants to buy out Moore

How much does he have to pay?

Can he force a sale?

Valuation of shares

Drag along

Level of consent needed

Right to receive cash

Right to a cash alternative

Warranties and indemnities on the sale

No drag along below subscription price

Exit provisions

Tag along rights

Percentage level

Right to receive cash

Partial sales/co-sale rights

Exit provisions

Question:

Sean and Connery are directors and 50:50

shareholders. They cannot agree on

anything.

What happens?

Deadlock provisions

Agree who your solicitor is acting for

Costs

Agree heads of terms

Keep it simple

Get it finished!

Practical considerations

ANY QUESTIONS?

FUTURE TOPICS OF INTEREST

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