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Own shares? What if you no longer want to!
Elizabeth Wilkinson
We have noticed an increase recently in instructions from clients who own shares in private companies and who for a variety of reasons want to leave and sell their shares but find this difficult to achieve.
The usual culprit is a poorly drafted shareholders’ agreement or the lack of one at all.
Private companies are often formed by friends or family members going into business together. They are also often owner/managers: owning shares and working in the company as directors. But what happens if things turn sour and you or someone else wants out? Unlike in public companies, there is no ready market for shares in private companies. Without specific rights or a legal claim, a shareholder cannot force someone else or the company to buy their shares. A director can resign or be removed by a majority of the owners easily, but he could be stuck with shares and unable to realise their value.
A company must have Articles of Association which are its internal rulebook. These are public and anyone can see them via Companies House. The Articles outline how the company is to be run including what powers the managers (directors) wield and what rights the owners (shareholders) enjoy. Standard form Articles deal with the bare basics but do not address a raft of issues relating to share ownership.
A well drafted shareholders’ agreement (or bespoke Articles) can provide solutions for a variety of circumstances. A shareholders’ agreement is a private document.
Below are some real-life issues encountered with the corresponding solution which can be included in a shareholders’ agreement.
A shareholders’ agreement does not mean that shareholders lose the right to ask a judge to protect their rights if they consider they have been unfairly prejudiced in some way but it can mean that such claims are less likely.
Trapped in your own business?
The team can advise on steps to take to strengthen your rights as a shareholder.
- Protection/risk management – get a solicitor drafted Shareholders Agreement to avoid future disputes
- How to escape if no longer interested in the business with cash!
Contact
Elizabeth Wilkinson, Partner:
e: elizabeth.wilkinson@bermans.co.uk
m: 07780309266