Shareholder agreement recent experience

The success of any business depends upon how a company is operated.  A tailored shareholders agreement drafted in conjunction with suitable articles of association sets out the framework for operation.  It is often too late to leave the questions open until trouble is brewing.

We set out below some of the most recent cases we have dealt with to give you a flavour for what we can achieve.

Example 1 - drafting a shareholders agreement for a start up

We set up the equity structure for a start up in digital media. We advised on the use of different classes of shares for founders and investors. Then we implemented bespoke articles of associations and a shareholders agreement.

Example 2 - online technology platform

We drafted a shareholders' agreement for investors investing in an online technology platform. The investors were concerned at the risk of the founders working on other projects unrelated to the business which, in turn, was likely to reduce the profitability of the business and setting up a competing business if they left the business in which the investors were investing.

To provide suitable comfort to the investors, we drafted a set of restrictive covenants prohibiting the founders from being able to work on any other business than the one the investors were investing in and setting up a new business in competition with the business the investors were investing. This was until a certain time frame had elapsed.

This provided the investors with sufficient comfort to invest in the company. The business has been so successful, we are now instructed by the current shareholders to assist on its sale.

Example 3 - shareholder agreement when investors join

We reviewed new articles of association and a shareholders’ agreement in connection with an investment into a tech start up. Our client, a soon-to-be investor, was concerned with what would happen to the founder shares should the founder die. Our client wanted to avoid the scenario where one of the founder’s family members became a shareholder by default. This would happen following the death of the founder, (who had no interest in the development of the business and could potentially be destructive to the business as a shareholder).

The solution to this was for a cross-option agreement to sit alongside the articles of association and shareholders’ agreement. Along with this, our client sourced a suitable insurance policy so that if the founder did die, the insurance policy would pay funds to our client. This ensures he had sufficient funds to purchase the founders shares, which he had a right of first refusal on as a result of the cross-option agreement.

Example 4 - drafting a shareholders agreement to avoid a deadlock situation

We prepared the articles of association and shareholders agreement for a business where the equity was held 50:50. The skill there was to propose a structure which avoided a deadlock situation, which would stifle the business.