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Home / Update and Advice/ If you're a shareholder, you need an exit strategy |
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If you're a shareholder, you need an exit strategyWritten by: Hadleigh Yonge |
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Too often we see shareholders get into disputes with each other and a 'deadlock situation' develops. A deadlock situation is when two equal shareholders can not agree on anything and owing to entrenched positions trading ceases and the company’s value is lost. A properly drafted shareholder's agreement can provide ways of breaking any deadlock and a 'way out of jail' for an aggrieved shareholder.
Adams can draft a shareholder's agreement that can include:
1. A prescribed way of valuing the shares. Then when one shareholder is to buy out the other shareholder(s), no money needs to be spent on instructing rival accountants and solicitors to both value the shares and negotiate an agreement on the value of the shares;
2. Pre-emptive rights. This means that if one shareholder is considering selling their shares to a third party (who could even be a competitor) then the remaining shareholder(s) get the pre-emptive right to buy the shares at the same price prior to any sale to a third party;
3. 'Drag along' and 'tag along' rights. A drag along right means that if one shareholder wants to sell his shares, then he can compel the other shareholder(s) to also sell their shares to a purchaser (at fair value). This is very attractive for the person wanting to sell their shares because it is much easier to find a buyer for all 100% of the shares, rather than 50% of the shares for example. Similarly a tag along right means that if one person is selling their shares to a third party, then the other shareholder(s) can require that shareholder to also sell their shares to the purchaser so they are not left in the company with a new shareholder that they do not want to work with; and
4. A 'Russian roulette' clause. This type of clause is a 'deadlock' breaker. One shareholder is required to name a price that he would purchase the other shareholder(s) shares at. The other shareholder(s) then have the option to sell their shares at that price, or purchase the other shareholder(s) shares at that price – and hence ending their 'deadlock'.
We can create a shareholder's agreement to suit your specific circumstances. For assistance in drafting an appropriate shareholder's agreement please contact Hadleigh Yonge at [email protected] or 020 7790 2000. |
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