Issues & trends - solutions

Question:
My parents and uncles run a third generation family Business, which is quite large and complex. The issue of Succession is being discussed and as I believe I will eventually become a shareholder in this business, can you please explain to me what is the benefit of having a Shareholder's Agreement in place?

Answer:

A Shareholder's Agreement is an agreement that governs the conduct of the shareholders and it should address all areas of possible concern. It has particular relevance where ownership of the business is being transferred to family members either as part of an estate plan (will) or by sale. As it can cover a broad range of issues, it should be relevant to the business issues that may arise in your family Business.

• Who will be allowed to hold shares in the business? eg Will it be restricted to family members?
• What happens in the event of a marriage breakdown? In most anecdotal cases, ownership will be restricted to bloodline family members or parcels of shares may be held and controlled by family discretionary trusts.
• What are the rules for buying/selling shares? Are there pre-emptive rights which restrict the vendor to particular family purchasers? Is it possible for shares under certain conditions to be transferred to non-family members?
• How will the shares be valued? It is worth considering putting a valuation formula in the Shareholder's Agreement so that it limits the opportunity to dissent.
• What happens in the event of the disability of a shareholder? This is particularly relevant if the shareholder is an employee.
• What happens in the event of the death of a shareholder? The family may decide to restrict who can inherit shares on the death of a shareholder.
• Any new shareholders should become a party to the Agreement.

This is, by no means, an exhaustive list of issues that could be included in a Shareholder's Agreement. You should seek professional advice from your family solicitor and ensure that all views are canvassed and contained within the Agreement. And remember, it is necessary for such an Agreement to be legally binding on all shareholders.