Shareholder Agreement – Long – No Share Issue – Minority Shareholder Bias

Shareholder Agreement – Long – No Share Issue – Minority Shareholder Bias

CO.SH.01.08
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. The first type will be the conventional active shareholder. Such shareholders may be directors or executive directors. The second type is the majority shareholder (or Principal Investor) whose contributions are almost exclusively monetary. Such shareholders 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.

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. Conversely, 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.

This Shareholders’ Agreement is well suited to situations where an “outsider” is to become a shareholder, acquiring the majority of shares in the company, 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). It contains additional protection for the minority shareholders and little protection for majority shareholders. Minority shareholder options are provided at Clause 9 of the Agreement, providing for the sale of shares by minority shareholders to remaining shareholders. A Tag Along clause is also included. Clauses 11 to 16 cover important provisions relating to the Board of Directors, Shareholder Meetings, Management and Reserved Matters.

With regard to pre-emption rights on a transfer of shares (dealt with in the Clause 7), this long version provides that any party to the shareholder agreement who subsequently 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, dealing with matters such as the period of validity of the seller’s offer to the other shareholders and the terms of the offer.

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

At the front of the Shareholder Agreement we have attached a set of specific guidance notes 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.

This Shareholder Agreement is in open format. Either enter the requisite details in the highlighted fields or adjust the wording to suit your purposes. Square brackets are used to denote optional words and phrases or an either/or choice. If the wording is required, the pair of square brackets should be deleted. If the wording is not required, then the pair of square brackets and the wording in between should be deleted.

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