- Why not come to the New TWP Wednesday Perspective on either the 4th or 18th April and put your question to our Commercial Law Team.
- Discuss any commercial topic, such as shareholders or partnership agreements, company or partnership formation and disputes involving business partners or shareholders.
- Our legal clinic will be open from 5pm until 6.30pm. No appointments are necessary, however please note that the duration may be restricted.
FREE CLINICS: April Wednesday 4th & 18th 5.00 - 6.30pm
Online Legal Clinic: Responses
Question:
My financial adviser has said that I should have a cross option written into my shareholder agreement. What does this mean?
Answer:
Where the shares in a company have some value, your financial adviser may suggest that life policies are taken out on the lives of the shareholders and written in trust for the benefit of the other shareholders so that if a shareholder were to die, there would be sufficient funds to purchase their shares. However the shareholder agreement would need to give an option to the estate of the deceased shareholder to call on the surviving shareholders to purchase the shares, and an option to the surviving shareholders to call on the estate to sell those shares. The cross option gives control to either party then to make sure that the shares remain with those in the business, and the surviving shareholders do not own the company alongside an unknown beneficiary of the deceased’s estate who may have no business acumen or may be a distant charity.
Question:
I have run a company for 5 or 6 years with my business partners and we’ve been advised that we should have a shareholder agreement. What does this entail?
Answer:
The agreement will firstly record a lot of what you are doing already. So we would need to know from you all what decisions each of you can make without reference to the other, which have to be made by a majority and which can only be made unanimously. These can range from hiring and firing staff, committing the company to spend over a set amount of money, to buying land for example.
Secondly the agreement will provide what happens to the shareholding of each of you should you die, leave the company, become sick or lose mental capacity.
What goes into the agreement will depend very much on your particular company and business partners. We would always wish to see all shareholders to talk about the issues, ensure that there is agreement, and then draft the agreement with those agreed terms in. Usually we would recommend your accountant come along to one of the meetings to make sure that you receive holistic legal and accountancy advice, and in certain circumstances your financial adviser too.
The first step is to arrange for all the shareholders to meet with us.
