It is possible to form a company very quickly and cheaply by simply adopting the standard, prescribed articles of association. However, where the company is to have more than one shareholder then it is likely that these standard articles will not be sufficient for the company. In particular, they are unlikely to be suitable where there are to be substantial changes to the ownership of the company, for example where friends and family investors have agreed to provide funding to help the company grow. In this situation, the standard articles of association are likely to require substantial amendment, and ideally, should be supplemented with a suitable shareholders agreement.
The form and structure of a shareholders’ agreement will vary from company to company, based in large part on the ownership structure of the company and the profile of its shareholders. For example, an owner-managed company with a few friends and family investors will have quite different requirements to a company started up by a couple of friends who will both be involved in the day-to-day running of the business. At the same time, an angel investor who wishes to invest into an owner-manager company will have yet another set of requirements.
However, all of these different scenarios will all likely address the same key factors which include the following:
- Management of the business – who has the right to appoint directors?
- What information are shareholders entitled to receive
- Are shares to be freely transferrable? Should shareholders be required to offer their shares for sale in certain circumstances?
- Should an agreed majority of shareholders be able to require the remaining shareholders to sell the company to a proposed buyer?
- Should the founder or founders have any special rights or special protections?
- Should there be limits on the activities that the company can undertake without first obtaining the approval of shareholders?
- What to do in the event of a deadlock between directors and/or shareholders?
It is important that advice is taken at the outset as this can prevent difficulties arising later on, difficulties which could have a significantly disruptive – sometimes even fatal – effect on the continuing success of the company and the relationship between shareholders.
Our corporate group has a great deal of experience in providing advice to shareholders in all of these situations: from advising owner-managers on their new venture to assisting with friends and family investment to advising on a joint-venture between corporate shareholders.
Whether you are looking for initial advice on setting up your new business, or you are looking to secure external funding to help your successful business grow, or your company wishes to enter into a joint venture with another organisation, our team would be happy to help.
The team provides advice that is underpinned by good commercial rationale.
Legal 500 2014
Edwin Coe LLP combines solid knowledge with a practical approach.
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Shareholders Agreements Team
Corporate & Commercial, Head of French Inward Investment
Corporate & Commercial