# Key Post: Shareholders Agreement



## Brendan Burgess (10 Feb 2006)

If you are buying shares in a private company or if you are being offered shares as part of your employment, it is vital to have a shareholders' agreement separate from the Memorandum and Articles of Association. It should be put in place before a problem arises 
as it is very difficult to reach agreement after you have fallen out over something which chould have been anticipated. 

Minority shareholders have special protection in the Companies Act, but it would be simply too expensive to enforce such rights. 

The key issues to be agreed are the calculation of profits and how salaries are determined. If the two major shareholders set the salaries, they can pay themselves huge salaries effectively reducing the value of the company. They are often also the owners of the business premises and can pay themselves an artificially high rent. 

Trawl through Askaboutmoney or search using "minority" and "shareholders" and you should come up with some problems posted be people after they had emerged. Try also searching under "shareholders agreement" or "partnership agreement".

If the auditor is not too tied in with the senior shareholders, you could ask them to draft the agreement. An accountant is better at identifying the issues than a solicitor, but you may wish to get a solicitor to verify the final document.

If the majority owners sell their shares to a third party, the minority shareholders should get the same deal. The minority shareholders should also be obliged to sell their shares, so that the intending purchaser can get full ownership of the company.

How will deadlocks be resolved? If equal shareholders reach a deadlock, one should put a price on the shares. The other then has an option to buy or sell their shares at this price.

http://www.fixmytax.com/148.html

Brendan


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## Brendan Burgess (9 Dec 2007)

*Re: Shareholders' Agreements*

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