Minority Bias Shareholder Agreement – No Share Issue

This Shareholder Agreement - Long - No Share Issue - Minority Shareholder Bias is intended to be used by shareholders of a company which already has shareholders and may have been only recently incorporated or which has been established for some time but the shareholders now wish to have a shareholders’ agreement in place.

It is designed for companies in which there are two types of shareholder: active shareholders and a majority shareholder (or Principal Investor) whose contribution is almost exclusively monetary.

Type of shareholder profile this agreement is designed for

• Active shareholders who may be directors or executive directors.
• A majority shareholder (Principal Investor) who may have little or no interest in having a management role in the company.

This Shareholder Agreement is a long-form, detailed document that creates a contractual relationship between the shareholders of a private limited company.

This Shareholder Agreement - Long - No Share Issue - Minority Shareholder Bias has been amended in line with the new provisions brought in by the Companies Act 2006 together with other improvements.

Why additional safeguards may be needed

In such companies, either of the two types of shareholder may require additional safeguards in the Shareholders’ Agreement.

• Minority shareholders may desire increased protection because they can be outvoted.
• Principal Investors will have little or no knowledge of the running of the company, will have little control and will require their investment to be protected.

Minority shareholder bias and key provisions included

This Shareholders’ Agreement is well suited to situations where an “outsider” is to become a shareholder, acquiring the majority of shares in the company and leaving the existing shareholder or shareholders with a minority share.

This Shareholders’ Agreement has been designed to protect the interests of the minority shareholder(s) and contains additional protection for the minority shareholders and little protection for majority shareholders.

• Minority shareholder options at Clause 9, providing for the sale of shares by minority shareholders to remaining shareholders.
• A Tag Along clause.
• Clauses 11 to 16 covering provisions relating to the Board of Directors, Shareholder Meetings, Management and Reserved Matters.

Pre-emption rights on transfers and additional detail in the long form

With regard to pre-emption rights on a transfer of shares (Clause 7), this long version provides that any party who wishes to sell must first offer the shares to the other shareholders.

This long version goes into further detail than the basic and standard shareholders’ agreements, including the period of validity of the seller’s offer to the other shareholders and the terms of the offer.

Non-competition, non-solicitation and related leaver clause

The Agreement contains a Non-Competition and Non-Solicitation clause since shareholders who are also directors will have access to information about the everyday management of the company which could damage the company if it is used by competitors.

It may also be beneficial to insert the Shareholder Employee Dismissal and Resignation clause, available from the list of related documents below, which provides for the sale of shares back to the company upon dismissal or resignation.

Guidance notes and articles of association

At the front of the Shareholder Agreement a set of specific guidance notes is attached to assist in tailoring the Agreement.

These guidance notes do not form part of the Agreement and should be removed before the Agreement is used.

It is recommended that companies use one of the Simply-docs Articles of Association with this Shareholder Agreement.

Where other Articles are incorporated, caution should be taken for inconsistencies between the two documents.

Clause 21 of this Shareholder Agreement - Long - No Share Issue - Minority Shareholder Bias provides that the Shareholder Agreement will prevail over the Articles in the event of an inconsistency, but inconsistencies should nevertheless be avoided because claims for breach of a Shareholders’ Agreement are subject to different rules to claims for a breach of the Articles.

Minority Bias Shareholder Agreement – No Share Issue is part of Corporate. Just £38.50 + VAT provides unlimited downloads from Corporate for 1 year.