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.
Greenwoods’ Corporate & Commercial and IP teams prepare Essentials to provide you with a summary of recent developments in company and intellectual property law that are likely to have an impact on your business. To talk through any legal issues that arise call David Woods on 01733 887793 or email firstname.lastname@example.org
This update is for general purposes and guidance only and does not constitute legal or professional advice. You should seek legal advice before relying on its content. This update relates to the prevailing circumstances at the date of its original publication and may not have been updated to reflect subsequent developments. If you have general queries about our updates, please email: email@example.com