If you are drafting a Shareholder Agreement, there is a lot to consider and many factors to keep in mind. It can be all too easy to overlook vital components and make mistakes that can prove costly in the long run.
Here, we take a look at some common pitfalls to avoid when drafting a Shareholder Agreement.
Failing To Include Provisions to Deal With Shareholders Leaving
It is vital to ensure that provisions are included in a Shareholder Agreement to ensure shareholders who leave the business do not benefit from the efforts of the others without making an active contribution themselves. Adding a clause that provides a buy-out process is the best solution in this case.
Failing To Include a Pre-Emptive Rights Provision
Without this provision in place, shareholders will be able to sell their shares on to another party whenever they wish. That party would then gain all of the shareholders’ usual rights. Including pre-emptive rights provisions ensures that, should a shareholder sell their shares, those shares must first be offered to the existing shareholders.
Failing To Include Confidentiality and Privacy Provisions
Shareholders often receive key business information which could then be misused if a conflict arises, and no confidentiality and privacy provision has been included in the Shareholder Agreement. Including this provision compels shareholders to maintain the privacy of this information.
Failing To Include a Process to Resolve Deadlocks
A deadlock between the company and its shareholders can result in the business failing if there is no clear process outlined in the Shareholder Agreement to ensure that all parties can move forward.
Failing To Include Clear Provisions for Resolving Disputes
If there is no clear process detailed in the Shareholder Agreement for resolving disputes other than deadlocks, the business can still fail.
The Importance of Seeking Professional Legal Advice
While having a Shareholder Agreement is not a legal requirement for business, it is always a good idea to put on in place to prevent costly issues arising later on. The biggest mistake of all when drafting a Shareholder Agreement is failing to seek professional legal advice.
A solicitor can give you advice you need tailored to the specific needs of your business and can draft a Shareholder Agreement that covers all possible eventualities to offer you, your company, and your shareholders optimal protection.
We have an excellent team and you can contact us at Carter Bond Solicitors on 020 3476 6751 or by email info@carterbond.co.uk
