Shareholders: How to avoid a coalition you did not choose
To avoid a situation where shareholders end up in business with others that they have not chosen to be or do not want to be in business with, a shareholders’ agreement or a well drafted company constitution might contain:
- appropriate restrictions on share transfers, including a first right of refusal for remaining shareholders to purchase the shares of a shareholder who wishes to exit;
- the right for minority shareholders to tag onto a share sale by the majority shareholders;
- the right for majority shareholders to drag minority shareholders into a share sale;
- an option for surviving shareholders to purchase the shares of a deceased shareholder using funds from an life insurance policy taken out specifically for that purpose; and
- appropriate termination provisions so that shareholders are not locked into the agreement until their death, bankruptcy or mental incapacity.
These are all really important issues to consider – and to deal with at the point of taking up the shares.
Well drafted articles and a robust shareholders’ agreement can give you significant protection in relation to such matters – and we can help you with making sure your arrangements are in the best possible shape.