Shareholders – A Lifelong Commitment – for how long?
Like in any personal relationship, a business relationship can quickly turn, if not to hate then certainly to apathy, frustration and irritation and all too often profitable businesses are distracted from their main purpose by acrimonious wrangling of the shareholders. Like any relationship than ends badly, often the next course of action is to seek legal resolution, but in a shareholder relationship this is not always a straightforward proposition.
If no provisions have been made in advance (for example in a Shareholders Agreement), when a shareholder relationship sours the only solution is for one or more shareholders to offer to buy the shares of the dissenting shareholder, but they are under no obligation to agree to sell the relevant shares.
In addition the ultimate demise of all individuals is death, and therefore, as uncomfortable as it is to discuss this it is something that should also be considered and addressed. If again, no provisions are made within the company’s constitution or within a shareholders’ agreement, when a shareholder dies, the remaining shareholders do not have any rights over where the shares are ultimately transferred to.
For shareholder relationships, forward planning is key. To set out special provisions either within the Company’s constitution or in a Shareholders Agreement provides safeguards for dealing with future relationship difficulties or an unexpected turn of events. The key is to put these safeguards in place before any difficulties arrive.
When considering what safeguards to put in place one important factor to give consideration to is the fact that the Company’s constitution is a publicly available document, while a shareholders’ agreement, so long as any special rights attached to shares are reflected in the constitution, does not have to be made public.
Shareholders, by bringing together a mix of skills, ideas and vision can provide real benefits to any company. However, an important consideration when coming together is to think…..what happens at the end.
If you have any further queries or would like guidance on shareholder related matters please call Anna or Nicola on 00 353 (0) 91 704818