Initial discussions on a Shareholders Agreement

Discussion in 'Legal' started by Happy in Harlow, Feb 9, 2018.

  1. Happy in Harlow

    Happy in Harlow UKBF Newcomer Free Member

    2 0
    Hi everyone.

    I was wondering if anyone could give me some advice or their thoughts on my situation.

    10 years ago we went into business with my Father – our company has 4 directors, (my parents, myself and my partner)

    My father invested an initial lump sum into the business, to help set it up, this has been paid back in full

    My father did no actual work in the company, added no benefit or contributed anything to the growth of the business yet received exactly the same wage as myself (who has worked 60 hours per week)

    Obviously this placed a huge strain on the company as wages were being given to someone who didn’t bring in any income or add anything to the “pot”

    Additional staff had to be hired to cover skills we didn’t have and my partner helped out for 8 years for no wage on the understanding that once the company became profitable this would be rectified- without this arrangement my father would not have received a wage.

    We were reasonably happy with this arrangement initially as a) the company owed my father his initial investment back, b) my mother and father are in their 70s and had no pension and c) eventually when my parents were no longer around we would have the business.

    We are at the stage now where we have to think about the future and want to “firm up” on the arrangements once my parents sadly pass away.

    We have mentioned it a couple of times but my father wasn’t keen on discussing it.

    I have a brother and a sister who have had zero interest in the company and have never been involved but I am afraid my parents will leave them a share each and we will have sacrificed everything and get stung in the process.

    We are in our 40s have 3 young children and hopefully a decent few years ahead – my parents are in their 70s.

    I am not trying to “screw” anyone out of anything but I believe I have sacrificed my most productive years and experienced monetary worries to build our company and enable my parents to have a good retirement. I do not want my siblings to suddenly start throwing their weight around in what I believe is my company.

    Has anyone had any experience in this type of scenario and could offer advice?

    I suppose what I would expect is that my parents shares in the company come to me for the years of work we did in ensuring they received their retirement income – any advice?

    Am i right in thinking that if my siblings become shareholders they cant automatically become directors?


    Thanks
     
    Posted: Feb 9, 2018 By: Happy in Harlow Member since: Feb 9, 2018
    #1
  2. obscure

    obscure UKBF Ace Free Member

    2,303 515
    The first thing to do is sack your accountant and get a decent one. If you have actually been paying your father (a shareholder) a salary (instead of dividends) for years that is a really tax inefficient way to operate.

    Once you have a decent accountant they will be able to answer most of your questions regarding your options for the future.

    Have your parents said that is what is going to happen? If not why would you expect it? You need to sit down and talk to them about what they intend to do with their shares (along with your accountant who can advise you on the tax implications of their shares "coming to you").

    If they don't intend for that to happen you then need to talk to the accountant about structuring a remuneration package (salary, pension, etc) that will reward you for the work you have done/will do in the future.

    You are right that they don't automatically become Directors but they can become directors if the Shareholders decide to appoint them as Directors. Again this is a very simple issue of basic company management/structure that should have been explained to you by your accountant.
     
    Posted: Feb 10, 2018 By: obscure Member since: Jan 18, 2008
    #2
  3. The Resolver

    The Resolver UKBF Ace Full Member

    2,963 967
    What is the shareholding split?

    Do I take it from the title to this thread that there is no Shareholders Agreement, a major clause in which would deal with succession on death.

    You should take an urgent look at the Articles of Association (search your company's name at companieshouse.gov.uk to see the file with the earliest entry covering the Articles - need to scroll down when opening the first entry) .

    As you say the company was formed 10 years ago then it will be governed not by the Model Articles but by a variation of Table A. Some company formation agents have their own Articles. Some Articles give power to the directors to deny a transfer by the executor of the estate to whoever is named as a beneficiary to the shares. On your father's passing, you and your wife control the Board decisions 2:1 so can refuse such a transfer fi you have this right in the Articles. . (As Obscure states being a shareholder does not give a right to become a Director) The Model Articles do not. So checking the Articles is urgent and very important. Bear in mind though it sonly the transfer to a beneficiary that the directors can block but not the shares being exercisable by the Executor to the estate.

    So its complicated and the worst thing with respect your father can do is to ignore the problem. You need a family get together after taking advice jointly.
     
    Posted: Feb 13, 2018 By: The Resolver Member since: Mar 31, 2006
    #3
  4. Happy in Harlow

    Happy in Harlow UKBF Newcomer Free Member

    2 0
    Hi guys
    Thanks for your detailed advice.

    The company has 4 x shares - a 25% spilt for everyone

    This is the relevant section of our Article


    Transmission of shares



    27.—(1) If title to a share passes to a transmittee, the company may only recognise the

    transmittee as having any title to that share.

    (2) A transmittee who produces such evidence of entitlement to shares as the directors may properly require—

    (a) may, subject to the articles, choose either to become the holder of those shares or to have them transferred to another person, and

    (b) subject to the articles, and pending any transfer of the shares to another person, has the same rights as the holder had.

    (3) But transmittees do not have the right to attend or vote at a general meeting, or agree to a proposed written resolution, in respect of shares to which they are entitled, by reason of the holder’s death or bankruptcy or otherwise, unless they become the holders of those shares.


    Exercise of transmittees’ rights


    28.—(1) Transmittees who wish to become the holders of shares to which they have become entitled must notify the company in writing of that wish.

    (2) If the transmittee wishes to have a share transferred to another person, the transmittee must execute an instrument of transfer in respect of it.

    (3) Any transfer made or executed under this article is to be treated as if it were made or

    executed by the person from whom the transmittee has derived rights in respect of the share, and as if the event which gave rise to the transmission had not occurred.

    Transmittees bound by prior notices


    29. If a notice is given to a shareholder in respect of shares and a transmittee is entitled to those shares, the transmittee is bound by the notice if it was given to the shareholder before the transmittee’s name has been entered in the register of members.
     
    Posted: Feb 13, 2018 By: Happy in Harlow Member since: Feb 9, 2018
    #4