Division of shares (ltd company) - Shareholder agreement

[prefab]

Hi, We are in the process of drawing up a 'shareholder' agreement for a ltd company. My partner and I think it would be a good idea if a clause were included that required any potential sale of shares by either party to be offered to the other party first. Would this be legally enforceable?

 

[Antonia @limeone.com]

It is a common clause and depending on the contents ie how it is written it is legally enforcable.

 

[Legal Clarity]

This type of clause is know as a pre-emption on transfer. You should also consider the price at which the shares should be offered to the other party, when and how the offer should be made and accepted, whether the selling shareholder can sell to a third party if the other shareholder does not take up the offer and the conditions which should be placed on any new shareholders (ie should the pre-emption also apply to them).

We draft shareholders agreements which contain pre-emptions on transfer and a wealth of other clauses to protect your investment in the company. We have also published a free shareholders agreement guide. I hope you find it useful.

You can find our free guide and shareholders agreement package at legalclarity.co.uk/shareholders-agreement.htm

 

[Cornish Steve]

If there are just two of you, don't split the shares 50:50 because you can face deadlock. Ensure one of you has 51% so a decision can be made when you disagree. (I know this isn't what you asked, but maybe it's relevant. )

 

[mahutchinson]

If there are just two of you, don't split the shares 50:50 because you can face deadlock. Ensure one of you has 51% so a decision can be made when you disagree. (I know this isn't what you asked, but maybe it's relevant. )

Very curious advice. The only time you would have deadlock is when the two parties disagree in which case neither would want the other to have the advantage. The 50/50 holding is made to avoid either getting the upperhand and the way to deal with potential deadlock problems is then set out in the shareholder agreement. So long as they make an agreement there should be no deadlock situations in the first place.

 

[JGOffshore]

Hi, We are in the process of drawing up a 'shareholder' agreement for a ltd company. My partner and I think it would be a good idea if a clause were included that required any potential sale of shares by either party to be offered to the other party first. Would this be legally enforceable?

This is perfectly acceptable either in a shareholder agreement or it can be included in the Articles of Association. It isn't always simple as you need to include an agreed method for valuing the shares. So, if the other shareholders wants to sell them to someone else he can't offer them to you at £1 million when they are only worth a few thousand!

 

[mahutchinson]

The usual phrasing is for an independent valuation by a qualified accountant, i.e. not someone either party knows or uses already as is often the case on this forum.