Company formation with a shareholders' agreement for overseas clients: once your limited company has been constructed and established, you will want to ensure adequate protection for all its shareholders, particularly if shareholders are located in different countries. We, at Coddan, stress the importance of executing shareholders' agreements, especially for overseas clients, as a convenient and effective way of regulating private company relations.
A shareholders' agreement can manage the expectations of shareholders, for instance, by preventing misunderstandings between any parties in relation to rights on transfer of shares, corporate governance and shareholders' obligations. The circumstances for requiring a shareholders' agreement may vary from company to company, but an agreement should always be considered when there are two or more shareholders in a company.
If a shareholding is not split equally amongst the partners, while all the parties agree to play a full role in the management of the private company, a majority shareholder can have very wide powers, and can act without consent of the other shareholders, and vote to appoint or remove directors, or to issue more shares, effectively reducing existing shareholders' ownership of the limited company. A shareholders' agreement is a useful instrument to prevent the misuse of voting power, to protect the minority shareholders against the power of the majority.
An additional advantage for overseas clients in executing a shareholders' agreement in the UK, is that at the outset of the contractual relationship, all parties can agree as to which countries' courts will have jurisdiction to hear disputes arising from the contract, meaning that, if the UK is an agreed seat, then overseas parties can apply to the UK courts for relief. While the articles of association of a company limited by shares are made available for public inspection, shareholders' agreements are private documents agreed between the parties.
At Coddan, we pride ourselves in executing tailor-made shareholders' agreements, according to the specific needs of the parties to them, with shareholders being free to agree the content and restrictions contained within the agreement. As well as offering a competitively priced service, here at Coddan we also offer ongoing specialist advice and assistance, giving our valued clients an additional level of support and peace of mind.
Why have a shareholder agreement? Having a well-drafted shareholder agreement in place can avoid or at the very least restrict disputes in the future and ensure a positive relationship for everyone involved, meaning that everyone understands their role within an organisation, as well as their rights and responsibilities.
Given the expense of costly legal action from a shareholder, the basic legal fees for setting up an agreement represent excellent value for money. A shareholders' agreement is different from a company's articles of incorporation in that it is not a public document, cannot be publicly accessed and does not have to be filed publicly.
It helps with succession planning in the event of the disability or death of a key shareholder. And, if a shareholder leaves, the agreement can help ensure a smooth transition. Equally, as a shareholders' agreement outlines the benefits and entitlements of holding shares in that organisation, they should feel more motivated to work hard, and have a better understanding of what is expected in terms of profit sharing and remuneration.
An agreement can also help retain clarity in circumstances like a takeover or a merger, and help avoid hostile takeovers and mergers, as well as the unwanted acquisition of shares from competitors.
Clauses in a shareholders' agreement: one important clause to have is called a "shotgun" clause - this prevents the chances of litigation in the future and gives any shareholder the option to offer their shares for sale at a given price to one or more of the other shareholders.
Essentially, this gives a suitable exit strategy for anyone with shares who may be feeling dissatisfied. Drafted properly, an agreement also helps an organisation to prevent disputes over things like the nature of shareholders' responsibilities, and expectations as far as job performance is concerned.
If the arrangement includes a non-competition clause, this means no-one can leave to compete against the company within a specified time frame and/or geographic area. It's also possible to include clauses that mean an employed shareholder waives all entitlement to severance pay if their contract is terminated.