FEBRUARY is traditionally the time for partners to express their affection with Valentine’s greetings and gifts. It’s not usually the time to think about breaking up and separation.
However – and here’s the bombshell – when it comes to business relationships, the time when you are getting on most famously with your fellow shareholders, might just be the best time to consider how to separate successfully.
Use such harmonious times in your business relationship to tackle fundamental questions like’How would we settle any disputes?’ “Who should leave and on what basis?’ and “What’s best for the business if we want to split?’
Check your existing shareholders’ agreements and articles of association to see if they cover a situation where there is a dispute between you and your shareholders. Consider who controls the board and where the balance of power sits when it comes to shareholder decision-making.
In each case, reflect on whether your business relationship has moved on since these documents were agreed and then decide if a few changes might avoid a dispute becoming an all-out war over your company.
If, for example, you are a shareholder owning 50 per cent of your company, think about amending the company’s articles to include transfer provisions that could help to break a deadlock situation between 50:50 shareholders. You could insert compulsory transfer events on the happening of which a defaulting shareholder will be deemed to have served a transfer notice offering his shares to the other non-defaulting shareholder.
Think about including trigger events to provide a means for one shareholder to buy the other shareholder out of the company. Alternatively, the articles could be updated to include a right of first refusal/pre-emption right for a shareholder in the event that the other shareholder finds a third party buyer who wishes to buy his shares, thereby providing another potential means of breaking a deadlock.
If there are no such provisions in your articles that might assist in relation to the deadlock, it may be that the only viable course of action following a dispute would be to wind up the company; a destructive scenario that you can defuse now by giving your articles and agreements a little love and attention.
If you are considering updating your articles or shareholders’ agreements, or would like advice on how to plan for a successful business relationship, contact Matthew Ward in the Corporate and Commercial Team at Wilson Browne Solicitors on 01604 876697, by email at , or by visiting www.wilsonbrowne.co.uk