As a corporate lawyer a fundamental aspect of the work that I undertake on behalf of our clients is the acquisition of shares in a company. Having carefully structured the requisite documentation providing for a successful purchase, the work does not end there. Post-acquisition, the focus shifts to the governance of the company moving forward and ensuring that the success of the company is always at the forefront of its shareholders minds. Therefore, just like the carefully structured transactional documentation effecting the purchase of the company, consideration should be given to the preparation of a carefully structured Shareholders Agreement.

Do I need a Shareholders Agreement?

A Shareholders Agreement is always recommended where you have multiple shareholders. This is irrespective of any familial relations, friendship or pre-existing ties that the shareholders may have. As you will see, a Shareholders Agreement is key to ensure that each shareholder is accountable for keeping the company’s interests at the heart, and in the case of connected shareholders it can underpin that separation of ‘business’ and ‘pleasure’ that can easily be lost when running a company together.

Do I need a Shareholders Agreement flowchart

Having established whether a Shareholders Agreement is appropriate for you and the share structure of the company, the question turns to what is a Shareholders Agreement?

What is a Shareholders Agreement?

Engage with a corporate lawyer at any stage of your corporate journey and no doubt they will ask you whether you have a Shareholders Agreement in place – but what actually is a Shareholders Agreement and how will this help promote the success of the company? 

A Shareholders Agreement is a private agreement between the shareholders of the company whether that consists of multiple individuals, multiple corporate entities or a parent company with multiple shareholders. The agreement binds them to certain provisions balancing their individual interests and that of the company whilst offering a solution to resolve any issues encountered in a clear and amicable way. 

Whilst there is no legal requirement for you to have a Shareholders Agreement in place, from experience there will be times when the shareholders reach an impasse and are unable to reach a solution and my first question is always “Do you have a Shareholders Agreement?”. Unfortunately without the presence of a Shareholders Agreement there is no easy solution and costly litigation often follows.

“Prevention is always better than cure.”

What is included in a Shareholders Agreement?

Each Shareholders Agreement is different and should be tailored to your own needs. When I am assisting clients with their Shareholders Agreements, it is important to get to know the company, its nature, the structure and how the shareholders intend to deal with the internal affairs of the company.

Whilst the Shareholders Agreement can provide a solution to resolve any internal disputes and how these will be resolved, it also cover the internal affairs and management of the company with a view of promoting the success of the company – these could include:

• provisions for restricted decision making so that it is agreed that certain decisions will require majority or unanimous consent
• the type of business which the company can undertake
• access to financial information for all shareholders
• restrictive covenants and confidentiality provisions to protect the goodwill of the company
• transfer provisions to prevent shares being transferred to third parties without first being offered to other shareholders
• ‘Deemed Transfers’ so that in certain circumstances (such as bankruptcy and death) there is a notice deemed to have been served to the continuing shareholders and the company so that they can purchase shares from the effected shareholder
• rights of minority shareholders to tag-along with a third party offer to purchase share capital held in the company
• rights of majority shareholders to drag-along minority shareholders in a proposed share capital sale to a third party
• rights of employee shareholders – including good/bad leaver provisions in the event the employee leaves the company

The above mentioned points are only a summary of the key provisions that I would expect to see in a well-structured Shareholders Agreement. However, as I mentioned above every company is unique and it is important that you make sure that you have an agreement that is tailored to you.

If you would like to discuss whether or not you need a Shareholders Agreement and what is included, contact Robyn Jefferies and the Corporate Team on 01604 828282 / 01908 660966 or email Corporate@franklins-sols.co.uk.

Companies House is the United Kingdom’s register of companies that all Directors and Shareholders should be familiar with. It is essentially an online tool akin to a treasure trove of information for corporate clients and solicitors alike. COVID-19 has however undoubtedly disturbed the running of this well-oiled Government machine, meaning that new measures have been put in place to overcome these unprecedented difficulties. This Article is intended to make you aware of some of these important changes.

Office Access & Filings

With social distancing measures in place, as well as reduced staffing levels, Companies House have closed their telephone contact centre, as well as their offices in Belfast, Edinburgh and London. You can however still email them at enquiries@companieshouse.gov.uk, send them documents by post to their London office, deliver paper documents to the Belfast / Edinburgh office or visit them at their Cardiff office, which according to their website is open 24 hours a day. Same day services are also currently suspended and you should expect delays in relation to the processing of paper documents. It is much more efficient to file documents online instead using WebFiling.

An interim emergency service has been created at https://beta.companieshouse.gov.uk/efs-submission/start which enables paperless filing in relation to filing a registrar’s powers document. This would normally be sent in paper format.

Filing Accounts

All private limited and public companies must file their accounts at Companies House, along with unlimited companies in certain circumstances. This is a statutory duty imposed by the Companies Act 2006. The failure to deliver accounts on time is a criminal offence that also carries a civil penalty. This can reach up to £1,500.00 for private companies and up to £7,500.00 for public companies. From the 25^th March 2020, businesses have been able to apply for a 3-month extension for filing their accounts. If the reason that you are requesting an extension relates to COVID-19 then it will automatically be granted.

Nonetheless, it is important to note that the Companies House website specifically states that companies which have already extended their filing deadline, or shortened their accounting reference period, may not be eligible for an extension. Also, if your accounts are filed late the penalty will be automatically imposed and the registrar has a very limited discretion to not collect it.

Strike Off

Under section 1000 of the Companies Act 2006, if the registrar has reasonable cause to believe that a company is not carrying on business or in operation, they may start the statutory procedure for striking its name off the register and subsequent dissolution. This could typically come about due to a failure to submit an annual confirmation statement or accounts on time.  Companies House have now paused the strike off process to prevent companies from being dissolved. This gives company Directors time to deal with the administrative side of their statutory duties.

Annual General Meetings

Under section 336 of the Companies Act 2006, public companies and private companies (if they are traded companies) are obliged to hold an Annual General Meeting within either 6 or 9 months of their accounting reference date. The Government announced that it will be introducing legislation to ensure that companies whose AGM date is fast approaching are able to do so safely and flexibly, such as conducting this online. Please however note that the requirements of a valid general meeting, such as quorum, which are detailed in a company’s articles of association are still applicable.

Pay Stamp Duty

A Stock Transfer Form is, as the name suggests, used to transfer shares from one person to another. You must no longer post stock transfer forms to HMRC and you should email them instead to stampdutymailbox@hmrc.gov.uk. E-signature will be accepted while COVID-19 measures are in place. To pay the stamp duty owed you must now pay electronically by Faster Payment, Bacs or Chaps. Cheques will not be accepted. You must then email HMRC with the details of the transaction. Further guidance can be found here.

If you would like further information on Companies House filing requirements, please contact Andrea Smith and the Business Services team on 01604 828282 / 01908 660966 or email andrea.smith@franklins-sols.co.uk.

The outbreak of COVID-19 has forced many business owners to ‘press pause’ on their business whilst the NHS fights the pandemic. However, when you are a business owner ‘pressing pause’ is not really an option. Therefore, in this time of uncertainty, what can you do to drive your business forwards? We are all guilty of having a ‘to do’ list that we never get to and save for a rainy day. Despite the spring weather, now is a good time to reflect on your business so that when the lockdown starts to lift, you are in a better position to commence trading once more. One classic example is putting in place a Shareholders Agreement. This is a private contract that regulates the relationship between shareholders and can deal with many aspects of business including:

• How key decisions are made
• How a deadlock is dealt with
• Restrictions on transferring shares
• What happens in the event of death or incapacity
• Employee Shareholders and what happens if they resign
• Managing a majority/minority shareholder relationship
• Dividend policies
• Confidentiality
• Competition and Restrictive Covenants
• Valuation procedures and policies

Ultimately, by putting in place a Shareholders Agreement you can prevent a dispute and address many of the uncertainties that can come up in the course of business.

If you would like assistance with putting in place a Shareholders Agreement or would like an existing agreement to be reviewed, please contact Holly Threlfall and the Business Services team on 01604 828282 / 01908 660966 or email holly.threlfall@franklins-sols.co.uk.

Question 1: I am a director of a Company, what do I need to think about when making decisions?

Answer: When making decisions there are certain factors prescribed by s172 of the Companies Act 2006 that should be considered. These include:

• The consequences of the decision in the long term;
• The interests of your employees;
• Your business relationships with others;
• The impact that the decision will have on the environment and the community;
• Maintaining high standards of business; and
• Acting fairly between the members of the Company.

Ultimately, all decisions must be made in the best commercial interests of the Company considering not only its members but its creditors as a whole. Every decision you make as a director will naturally have an impact on the company, its operations and people that it deals with. What is in one person’s interests may not align with another’s and you need to be able to justify a particular decision as in the Company’s best interests.

Question 2: What do I do if there is a conflict between my interests and the Company’s?

Answer: This will depend on what is in your Company’s Articles of Association. It may be possible to continue to participate in the meeting if you have the necessary authority from either your Articles or the Shareholders. If you don’t, the rule of thumb is that you cannot count for quorum or voting purposes.

For more information and to find out how we can help, contact the Franklins’ Business Services team who would be happy to assist on 01604 828282 / 01908 660966 or at BusinessSevices@franklins-sols.co.uk.

Taking on the role of a company director brings with it a number of duties under the Companies Act 2006.

They can be summarised as:-

• Duty to act within powers of the company’s constitution i.e. Articles of Association
• Duty to promote the success of the company
• Duty to exercise independent judgement
• Duty to exercise reasonable care, skill and diligence
• Duty to avoid conflicts of interest
• Duty to accept benefits from third parties
• Duty to declare an interest in proposed transactions and arrangements

Owing a duty to shareholders as the owners of the company has perhaps surprisingly for some never been part of the above Code.

In the case of Vald. Nielsen Holdings A/D v Baldorino [2019] EWHC 1926 (Comm) the High Court considered the situations in which the above duties would extend to shareholders as a result of a fiduciary relationship; in other words when the director acts on behalf of a shareholder in managing and overseeing the shareholder’s assets.

The case related to a Management Buy-Out scenario in which it was claimed by the shareholders that they were misled by the false representations of the directors, who were the buyers, and as a result the shareholders parted with their shares for much less than they were worth. It was argued that the directors had breached their fiduciary duty and as a result the shareholders sought to recover an account of profits by way of compensation.

The High Court held that unless there were special circumstances in respect of the relationship between the director and shareholders, then no fiduciary duty arose. However, it was necessary to carefully consider the nature of the relationship in the wider context.

It is therefore possible that if a director is in breach of the above duties and a loss is suffered by a shareholder, creditor or the company then a claim could be made against the director personally.

Find out more about Dispute Resolution here.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk