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Shareholder Agreement Transfer to Family & Transfer on Death/Incapacity of Shareholder

CO.SH.01.12

This template shareholder agreement is based on our Standard Shareholder Agreement - No Share Issue but with changes made to the transfer provisions. 

Most shareholder agreements provide that should a shareholder wish to sell or transfer their shares in the company, the other shareholders will have the right of first refusal pro-rata to their current shareholding proportion, before those shares are offered to anyone else. Whilst this is an option and not an obligation to purchase any shares that become available, it is a useful mechanism for shareholders to maintain a level of control over whom the shares may be transferred to as well as an anti-dilution measure.

However, there may be situations where the shareholders agree that there can be exceptions to this. This template has therefore been drafted to include two significant carve outs to this. Firstly, there is an overriding provision that allows for a shareholder to freely transfer shares to family members at any time and secondly, a provision that specifically deals with the death or incapacity of a shareholder. 

On the death or incapacity of a shareholder, the template allows for the shares of that shareholder to be valued and this will then be deemed to constitute an unconditional offer for their sale, firstly to the company and then to the other shareholders. The beneficiaries of the deceased should therefore receive a fair value, market price for the shares. This clause may be drafted so that the shares are instead transferred directly to the deceased’s beneficiaries, but this can be a complicated area and the shareholders need to consider what they want to achieve in the event of the death or incapacity of a shareholder. Do they wish for example, for their families, who may have no business experience, to inherit shares in the company and how will this be perceived by the other shareholders? There will also be tax and insurance matters to consider.

Whilst this agreement includes a brief guidance note at the beginning to address these issues, it is essential that parties seek independent legal and tax advice.

This agreement anticipates that no new shares are being issued.

Optional phrases / clauses are enclosed in square brackets. These should be read carefully and selected to be compatible with one another. Unused options should be removed from the document.

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