Thinking about these questions and being able to answer them will get you a long way to creating your shareholders agreement:
If you are in need of legal advice for a Shareholders Agreement book a free introductory call.
Who has shares and what kind?
- Who are or will be the shareholders?
- Are all the shares the same or are there classes of shares with different rights? Perhaps some shares have votes and some don’t?
- Who are or will be the directors? The directors run the company and shareholders do not usually have a say in the day-to-day running of the business (unless they are also directors).
- What percentage of the shares will each shareholder own before and after the investment?
- Has the company and the shareholders taken tax advice to make sure that the proposed share structure is as tax efficient as possible in relation to capital gains tax, business assets disposal relief and SEIS or EIS?
What is expected of shareholders?
- How are the shareholders paying for shares – in cash or with services as ‘sweat equity’?
- If the company plans to issue sweat equity, what does a shareholder need to do to earn the shares and within what time span? If the shareholder doesn’t deliver, what proportion of the share ‘entitlement’ should the shareholder lose?
- In addition to paying for the shares, does a shareholder have to do anything else in order to get the shares? This could be signing an agreement with the company or transferring ownership of something to the company. Here are some common examples:
- transfer of intellectual property rights in a website or software or brand;
- a licence or lease allowing the company to occupy premises;
- a loan agreement to document any loan made alongside an investment in shares; or
- a license agreement for the use of software.
Running the business
- Have the shareholders and the company been working together for some time perhaps before the company was incorporated? What are the loose ends that need tidying up?
- Who will be the directors? The directors should have service agreements with the company.
- Does the company have a business plan? Does anybody other than the directors have a say in it? This could be non-director shareholders or some of them.
- Are there any limits on amounts of money that can be spent by the directors without the approval of the founder or the majority shareholders?
- Is there a founding or majority shareholder who wishes to be able to control certain decisions of the company?
- If the shares are split 50/50 and the shareholders are the only directors, how should disagreements be resolved?
Transferring shares
- If a shareholder wishes to sell shares, should the other shareholders have a right of first refusal?
- If a shareholder dies, should the person who inherits the shares be obliged to sell them to the remaining shareholders? Should there be a mechanism that sets the price?
- Should the company itself be able to buy back shares from the shareholders?
- Does the founder or majority shareholders want to be able to force other shareholders to sell if they want to accept an offer to buy the company?
Fixed Fee Shareholder Agreements
JPP Law offers UK startups fixed price shareholders agreements. If you would like a no obligation quote, please book your free consultation with a member of our legal team. During the call the solicitor will talk to you about your requirements and then follow up the call with a written fixed fee quote.
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