Being able to rule the roost

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Published: 27 Apr 2022

Many of us like to run our own company as a way of expressing ourselves and successfully providing a product or service to others. But success in doing so may mean engaging others to help in the cause.

In a private company at an executive level the normal position is for :-

A Holding over 50% of the voting shares enables you to:

  • Appoint and dismiss directors, and therefore have full control over appointee
  • Authorise new issues of shares
  • Declare dividends

A Holding over 75% of the voting shares enables you to:

  • Change the company articles (the company rule book)
  • Wind the company up

However, company law protects the interest of the minorities where they are treated unfairly by the majority shareholders.

Many a dispute occurs where the shares are owned 50:50 between two shareholders (or two groups of shareholders). In these situations they are invariably at loggerheads with each other: so, trying to make them see reason is difficult to say the least.

Avoiding a shareholder deadlock

This calls for planning in the early stages of the company's life. A shareholder's aggreement can provide a solution to avoid a continuing deadlock. This may include:-

  1. Agreement in advance on an independent arbitrator who can resolve the outstanding issues.
  2. Provisions where a shareholder can give notice to the other(s), giving them the option to either sell the shares to him at a price per share of his choice or buy his shares at the same price. This encourages a realistic offer!
  3. Provisions that, if the deadlock is not resolved, any shareholder can insist on the company being wound up.

So, when you reach that happy day of wanting to sell all the shares in the company and retire or start another venture, you do not want to be prevented from doing so by a recalcitrant shareholder not wanting to sell his minority shareholding.

This can be avoided by including in the shareholders' agreement a 'Drag and Tag' provision that requires the minority shareholder to sell to a third party on the same terms as you have agreed to sell your shares.

For advice on company valuations, sale of companies and share interests, shareholder protection or divorce settlements, email [email protected] or call on 07749 080 806.