Shareholder's Agreement - Drafting Flashcards
Structure
1) Parties
2) Recitals
3) Interpretation
4) Business of the Company
5) Shareholder obligations
6) Transfer of Shares
7) Issue of Further Shares
8) Restrictions on the Parties
9) Directors
10) Termination
11) Status of this agreement
12) Confidentiality
13) Entire Agreement
14) Variation and Waiver
15) Costs and Expenses
16) No Partnership or Agency
17) Notices
18) Severance
19) Governing Law and Jurisdiction
Which clauses am I likely to have to draft
1) Recitals
2) Part of interpretation
3) Business of the company
4) Shareholder Obligations
5) Transfer of shares
6) Restrictions on the parties
7) Directors (Bushell v Faith clause)
8) No Partnership or Agency
Recitals
(A) [NAME OF COMPANY] (the Company) is a private company limited by shares incorporated and registered in England and Wales with company number [NUMBER] whose registered office is at [ADDRESS]. The Company has an issued share capital of [£], divided into [NUMBER] [ordinary] shares of [£] each, all of which are fully paid
(B) Each Initial Shareholder is the registered owner of the number and class of shares set out opposite their name in Schedule 1
(C) The parties have agreed to enter into this agreement as a deed for the purpose of regulating the exercise of their rights in relation to the Company and for the purpose of making certain commitments as set out in this agreement
Business of the Company
The business of the Company is the [maintenance and repair of motor vehicle engines], subject to variation from time to time in accordance with the provisions of this agreement.
Shareholder Obligations
Usually the Q will contain a list of matters which need shareholder consent are obliged to use their powers as shareholders to prevent the Company from undertaking without first obtaining shareholder consent
Shareholder Obligations - Matters requiring consent
Each Shareholder shall [use their reasonable endeavours to] procure (so far as is lawfully possible in the exercise of their rights and powers as a shareholder of the Company) that the Company shall not take any of the actions set out in Schedule 2 without Shareholder Consent.
Transfer of Shares - General prohibition on Share Transfers by shareholders without shareholder consent
No Shareholder shall create any Encumbrance over, transfer or otherwise dispose of or give any person any rights in or over any Share or any interest in any Share, except as permitted or required by this agreement
Transfer of Shares - Obligation requiring shareholder to resign as a director on their ceasing to hold any shares
If, following a transfer of Shares in accordance with this agreement, a
Shareholder will hold no further Shares, the Shareholder must deliver, or procure that there are delivered, to the Company their resignation as a director of the
Company to take effect at completion of the transfer of the Shares.
Restrictions on the parties
Most agreements include restrictive covenants that each shareholder will not carry on any other business that competes with the business of the company or entice away customers and/or employees and/or key suppliers. These clauses need to be drafted no more widely than is necessary to protect the company’s business interests. It must be reasonable as to the scope of the restricted activity, the length of its term and its geographical area
Restrictions on the parties - Scope of restrictive activity and company’s business
If the scope of the activity is limited to the company’s business then it will be reasonable
Restrictions on the parties - Scope of restrictive activity and geographical area
The geographical extent of the restriction should generally be confined to the areas in which the company’s business is operating at the time the agreement is made. E.g cannot justify a United Kingdom-wide restriction when it is only trading in England. Cannot justify an England-wide restriction when it is only trading in certain English
counties. Therefore, the clause has been redrafted to limit the restriction to those counties.
Restrictions on the parties - Scope of restrictive activity and length of term
Varies depending on the circumstances. Most clauses are limited to 6 or 12 months
Restriction on parties - Wording
Except with Shareholder Consent, no Shareholder shall, during the times specified below, carry on or be employed, engaged or interested in any business in [Leicestershire] which would be in competition with any part of the Business, including any developments in the Business after the date of this agreement. The times during which the
restrictions apply are:
(a) any time when the party in question is a Shareholder; and
(b) for a period of 6 months after the party in question ceases to be a
Shareholder.
Directors - Bushell v Faith clause
On a poll on a resolution for the removal of [NAME] as a director, any shares held by him shall have [3 votes] per share
No partnership or agency
Exclude any implied authority of one party to the agreement to bind the other, and the duties which exist between partners.
No partnership or agency - Wording
Nothing in this agreement is intended to, or shall be deemed to, establish any partnership or joint venture between any of the parties, constitute any party the agent
of another party, or authorise any party to make or enter into any commitments for or on behalf of any other party.
