Shareholders' agreements

Shareholders and Directors are vital components of any company, with a variety of responsibilities and legal obligations.  We have worked over many years with companies on their shareholder agreements for their company, as well as with shareholders themselves on any disputes rights within the company.

Here, we explain the questions all shareholders should be aware of:

Can I sell my shares to anyone?

This will depends on the company’s Articles and any other agreement between you.  Before consideration of whether to sell your shares, you must review the restrictions and rights of first refusal named in those Articles to avoid sales to undesirables.

Can I sell my shares at any time?

Again this depends on the Articles and any shareholders’ agreement you have entered into.  It may be that these documents restrict the sale of your shares within the first few years of the company’s life to provide stability.  They may also require you to seek Director’s approval before a sale is agreed.

Can I be forced to sell my shares?

While generally this is not a likely situation, your position is determined by the Articles and shareholder’s agreement as it is likely these will demonstrate certain circumstances when this could happen.  Usually these include where a shareholder is no longer an employee or Director, becomes bankrupt or is convicted of a serious criminal offence.

What are my shares worth?

The value of a company will fluctuate over time and there are various different methods and formulas for valuing a company depending on the sector in which it trades, as well as potential and historical trading.  As your solicitor, we would be able to give you a guide as to their worth, alternatively your accountant or sales agent would also be able to provide you with this.

What happens if one of the shareholders dies?

By default, shares would normally pass under a Will or under the laws of intestacy.  You can protect the company, fellow shareholders and your loved ones by having an option agreement allowing the ongoing shareholders to buy the shares for a pre-agreed price.  We would always recommend you seek legal advice about having this type of protection for your company, for which we can put you in contact with our colleagues in our Private Client team.

If the company goes bust, am I liable?

In a limited liability company your liability tends to be limited to the amount unpaid on your shares, even though you may have given personal guarantees.  Directors may be personally liable in certain circumstances; therefore it is crucial Directors and shareholders take legal advice as soon as possible to assess and limit your risk.

Do all shareholders have equal rights?

A company can have different classes of share, each with different rights, for example to receive dividends, to vote on certain decisions etc.  A person owning more than 50% of the voting shares will normally have ultimate control.

Can I be a Director?

This depends on the Articles of the company as they might allow the current Directors to choose and appoint new Directors, even though usually a majority shareholder can appoint themselves a director.

How will I be paid?

It is important to distinguish between income and capital.  If you can afford to, it may be best to draw a minimal salary or dividend and leave the rest in the company to take advantage of favourable tax reliefs when and if you sell. Either we or your accountant can help you plan the best method for you.

What say do I have in running the company?

The Directors, rather than shareholders, have day to day control of the company affairs. A shareholders’ agreement and special Articles can give you rights you wouldn't otherwise have.

Find out more about Directors' duties here, or to discuss your business sale or purchase with a member of the team, contact us:

Steven Grant on 023 8071 7445 or email stevengrant@warnergoodman.co.uk
Naushad Rahman on 023 8071 7409 or email naushadrahman@warnergoodman.co.uk

To speak to one of our experts please call us

The information and advice was clear and concise and made what was a very stressful time a little easier.