A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not s...
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Shareholders Agreements & Disputes

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This 2 Hour Online CPD Course examines the main provisions in a Shareholder agreement, the pitfalls and what advisors need to watch for when guiding clients through the process. Presented by Alan O’Driscoll of Flynn O’Driscoll Business Lawyers gain insights into the creation, implementation and resolution of disputes arising from Shareholders Agreements.

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Shareholders Agreements & Disputes

  1. 1. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. In Association with:- Online CPD for Accountants & Professional Advisors Shareholder Agreements and Disputes Presenter: Alan O’Driscoll – Flynn O’Driscoll CPDStore.com Unit 3, South Court, Block D, Iveagh Court, Wexford Road Business Park, 5 – 8 Harcourt Road, Carlow. Dublin 2. 059 9183888 01 4110000 www.OmniPro.ie www.CPDStore.com
  2. 2. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Shareholder Agreements and Disputes Supporting Documentation Index Contents Page Slide Set 1 – 27 Back Up Paper Shareholders Agreement Briefing Questionnaire 28 – 34
  3. 3. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. The Practising Accountants Seminar Shareholder Agreements and Disputes December 2011 Alan O’Driscoll No.1 Grants Row Lower Mount Street Dublin 2 Ireland Tel: + 353 1 6424220 Fax: + 353 1 6618918 Topics Clients - different types, different emphasis Shareholder Disputes Appendices OmniPro Education & Training Page 1 of 34
  4. 4. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Client Types 1. Clients who want to put an agreement in place t regulate th i own relationship and l to l t their l ti hi d the management of the company This consists of all types of companies including start up and early stage companies (“Newco”) and also established trading companies (“Tradeco”) Client Types 2. Clients who are investing in a company or wish to bring in investment into their company (“Investco”) OmniPro Education & Training Page 2 of 34
  5. 5. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Shareholders Agreement Advantages for Newco and Tradeco Restrictions on transfer of shares Prohibition on any transfer of shares for an initial period to be agreed. This is common in early stage companies or established companies where new/employee shareholders are being brought into the business. If any shareholder is selling shares in the company, the other shareholders shall b entitled t purchase a portion of th h h ld h ll be titl d to h ti f the shares on offer, pro rata to their existing shareholding, so as to ensure their shareholding is not diluted OmniPro Education & Training Page 3 of 34
  6. 6. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Pre-emption on allotment of new shares If the company decides to issue new shares, the i ti th existing shareholders shall b entitled t h h ld h ll be titl d to acquire allotted additional shares pro-rata to their existing shareholding so as to ensure their shareholding is not diluted. Non-Compete It is to the benefit of all parties that a shareholders agreement contains non- h h ld t t i compete provisions preventing a shareholder from participating in any way in a competing business while they are a shareholder in the company. This would also usually extend for a period of six to twelve months from which a shareholder no longer hold shares in the company. OmniPro Education & Training Page 4 of 34
  7. 7. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Mandatory Transfers of Shares Shareholders can also benefit from the inclusion of certain default provisions This would allow the non provisions. non- defaulting shareholders the opportunity to purchase the shares of any defaulting shareholder who commits an event of default which can include for example, being in material breach of the shareholders agreement, being declared bankrupt or being a Bad g , g p g Leaver. Employment Matters “Good Leaver/Bad Leaver” provisions can provide for mandatory transfer of shares where a shareholder s shareholder’s employment with the company is terminated - assists in bringing finality to a difficult employment situation where the company terminates a shareholder’s employment contract for capability or misconduct - assists with ‘locking in’ the executive management team OmniPro Education & Training Page 5 of 34
  8. 8. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Employment Matters A Good Leaver will usually be defined simply as an employee who has ceased employment with the Company arising from any of the following: (i) death; (ii) termination of employment where he has become incapable of satisfactorily performing his duties to the Company due to physical or mental incapacity or ill health (provided that such ill health is not caused by abuse of either drugs or alcohol); or (iii) where h claims th t t h he l i that termination of hi employment was a i ti f his l t constructive, wrongful or unfair dismissal and he succeeds in such action before the courts or other tribunal. Employment Matters A Bad Leaver will usually be defined as an employee who has ceased, at the relevant time, to be engaged full time to the extent required by his employment agreement with the Company for any reason other than that specified in the definition of Good Leaver. This will generally mean a shareholder who has breached his contract of employment, is leaving the company voluntarily, is guilty of misconduct or has repudiated his contract of employment giving the company the right to terminate. OmniPro Education & Training Page 6 of 34
  9. 9. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Dispute Resolution The shareholders agreement can set out in detail how disputes are to be dealt with. The shareholders may wish to firstly use mediation before going to arbitration or court, both of which can be very costly. Companies that are held 50/50 between two shareholders who are also the company’s only directors should have a shareholders agreement with deadlock provisions to allow provisions, either shareholder buy the other shareholder’s shareholding in the event of a serious dispute which prevents the company continuing to function. Privacy A private company must file its articles of association with the Companies Registration Office which is then Office, available to the public to obtain. The advantage with the shareholders agreement is that it does not have to be filed with the Companies Registration Office and so the contents are private. OmniPro Education & Training Page 7 of 34
  10. 10. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Specific Issues for consideration p for Newco when considering to put a shareholders agreement in place Corporate Governance • Directors’ meetings –the shareholders agreement can be used to set out the rules t b dt t t th l and regulations relating to directors’ meetings. The following are a number of matters that can be dealt with: - Who is entitled to nominate and have appointed a director to the board; - Information rights; OmniPro Education & Training Page 8 of 34
  11. 11. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Corporate Governance - Quorum required for a valid meeting; - Chairman to have casting vote in the event of a tie; - The minimum number of meetings to be held annually; - Notice to be given to each director in advance of each meeting; - Methods of participation in board meetings. Corporate Governance • Shareholders’ meetings – in a similar manner shareholders meeting can b h h ld ti be regulated in the shareholders agreement. The following are a number of matters that can be dealt with: - The quorum needed to hold a valid meeting; - Notice required to be given; - Chairman (casting vote). OmniPro Education & Training Page 9 of 34
  12. 12. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Business Plan Another option for shareholders is that a business plan is agreed upon and adopted by the shareholders and adopted and annexed to the Shareholders Agreement To be reviewed annually or as often as is necessary Comfort to shareholders who are not involved with the day to day running of the company Directors Salary Formula It can be very helpful in early stage owner managed companies t agree a formula f d i to f l for directors’ salaries based on a company’s monthly turnover/profit and cash flow OmniPro Education & Training Page 10 of 34
  13. 13. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. COST Cost – new companies will be concerned about th cost of putting a shareholders b t the t f tti h h ld agreement in place especially in the early stages of development when availability finance can be difficult to obtain. The cost will vary depending on the complexity of the circumstances and also the level of detail the parties require. Specific Issues for consideration for Tradeco when considering t put a shareholders h id i to t h h ld agreement in place OmniPro Education & Training Page 11 of 34
  14. 14. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Retirement and Business Succession Compulsory retirement (Bad Leaver?) Extracting value / agreed exit strategy Employee Long Term Incentive Plans / Share option schemes Management Buyouts / Buyins Death • Shares remain with the Estate/ Beneficiaries • Shares purchased by the Company • Shares purchased by other shareholders • Life policies OmniPro Education & Training Page 12 of 34
  15. 15. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Investco Once again, depending on what side of the transaction your client i on, th requirements t ti li t is the i t for your client will differ Specific issues for consideration for clients who are i investing in a company ti i We are assuming for the purpose of this presentation that the investor will become a minority shareholder shareholder. OmniPro Education & Training Page 13 of 34
  16. 16. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Investment Preconditions • Completion by the Investor of satisfactory financial and l fi i l d legal d dili l due diligence; • Management employment contracts and emoluments to be agreed; • Keyman insurance; • Adoption of a business plan; • Confirmation of intellectual property rights. Use of Proceeds A clause such as this will state that the company shall use th monies subscribed b h ll the i b ib d by the Investor solely as outlined in the company’s business plan. There should also be a provision whereby changes to the business plan and its financial budgets and outgoings must be approved by the Investor. OmniPro Education & Training Page 14 of 34
  17. 17. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Access to Information Where an Investor decides not to take part in the i th running of the company or i not a i f th is t member of the board of directors, a clause would usually be included whereby the company would have to provide the Investor with access to certain information (audited accounts /management accounts / other financial or operational information) within agreed time periods Investor Consent A shareholders agreement will usually provide for f certain actions/matters which th company t i ti / tt hi h the shall not undertake without the prior written consent of the Investor. A list of such matters is commonly scheduled to the agreement and can vary widely as to its contents. OmniPro Education & Training Page 15 of 34
  18. 18. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Director on the Board The Investor should have the right to nominate at least one person to act as a director of the company company. If the Investor is seeking control of the decisions of the board then he may insist on a greater number of directors which he can nominate in order to give himself that control. The Investor s director may also be required to form Investor’s part of the quorum. Conduct of the Business The shareholders through themselves and the directors they appoint will generally enter into appoint, covenants regarding the conduct of the business. Such covenants would typically include that the company will carry on the business in an effective and business-like manner in line with the business p , plan, and that any action undertaken by the company y y p y will be done in the ordinary course of business and in contemplation of the direct benefit of the company. OmniPro Education & Training Page 16 of 34
  19. 19. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Warranties An Investor may also seek warranties from the company and its existing shareholders. Warranties are effectively statements concerning the company, in particular concerning its share capital structure, business plan, liabilities, capacity, title to premises, assets, litigation, employees etc. The warranties will usually survive until the second anniversary of completion after which the Investor will no longer be able to claim for a breach. Share Transfers There are a number of options open to the parties in relation to share transfers which can benefit their respective positions. For example the Promoters cannot transfer their shares without the prior written consent of the Investor. OmniPro Education & Training Page 17 of 34
  20. 20. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Share Transfers Where the Investor is a minority shareholder he should insist on the benefit of a tag along provision. Where this provision is included and the Majority Shareholders are selling their shares in the company, the Investor shall be entitled to have his shares also purchased by the purchaser on the same terms terms. Restrictive Covenants The shareholders agreement usually includes a clause which will restrict th current l hi h ill t i t the t shareholders and Promoters from competing with the company. Such covenants will usually enter into force on completion of the investment and will continue for two years after the date on which the relevant Promoter/shareholder ceases to be a shareholder of the company. OmniPro Education & Training Page 18 of 34
  21. 21. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Specific issues for consideration for clients who wish t b i i i i h to bring in investment i th i company t t in their We are assuming for the purpose of this presentation that the client that is bringing in the investor will remain the controlling shareholders. The shareholders agreement can be drafted significantly in favour of the controlling shareholders depending on the g p g relationship between the parties. The issues to consider can include, but are not limited to: The Board • The Investor may try to negotiate a contractual right in the shareholders agreement to nominate and have appointed a director to the board. The Controlling Shareholders should try avoid this right and perhaps allow the Investor to have an observer present at board meetings who is not entitled to vote. • If the Controlling Shareholders are forced to g g give this right to the investor, they ensure they maintain a majority on the board and therefore retain the control of the day to day activities of the company. OmniPro Education & Training Page 19 of 34
  22. 22. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Drag Along A significant advantage for majority shareholders g g j y to enter into a shareholders agreement is the benefit of what is referred to as the drag along provision. Where this provision is included and the majority shareholder receives an offer for all of the shares of the company, the majority p y, j y shareholder can force the minority shareholders to also sell their shares to the purchaser. Default Majority h h ld M j it shareholders can also b l benefit f fit from the inclusion of certain default provisions. This would allow the majority shareholders the opportunity to purchase the shares of the investor who commits an event of default which can include for example being in example, material breach of the shareholders agreement. OmniPro Education & Training Page 20 of 34
  23. 23. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Shareholder Disputes Disputes in the Media Coman Family Dispute – Rathgar Pub Eddie Irvine • Shareholders agreements provide structure and rules so that the shareholders are putting themselves in the best position to avoid potential disputes disputes. • If a dispute arises between shareholders, recourse to the courts should be a last resort remedy due to the amount of time and money it will cost. It is true that litigation may sometimes be necessary to protect shareholders (particularly minority shareholders) rights, however other options such as mediation can often be effective in breaking the deadlock between shareholders. • A properly drafted shareholders agreement should provide for the fact that disputes may arise and relationships break down, and provide effective and efficient solutions to resolve these issues. OmniPro Education & Training Page 21 of 34
  24. 24. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. • The first option should always be to get the parties to meet and discuss the issues at hand, and to try and resolve the issue. Such an option however must be subject to strict time limits, as the dispute may be centred around the company taking a particular course of action which may lapse if the dispute is not resolved as quickly as possible. • The following briefly sets out certain options which are available to shareholders who wish to initially avoid having a court resolve a shareholders dispute: Third party Director/shareholder with a casting vote Such a person will hold the balance of control at board and general meetings of the company Ideally company. the 3 rd party should have strong experience in the industry so that the decision which he/she makes can be seen to be in the best commercial interests of the company. The main advantage of this option is that the decision of the 3rd party will inevitably be quicker and less formal that other avenues while it avenues, will also have the advantage that the person making the decision is inherently familiar with the business of the company. OmniPro Education & Training Page 22 of 34
  25. 25. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Mediation The appointment of a mediator under a shareholders agreement will seek to encourage an agreement being reached by th parties through consensus, th b creating h d b the ti th h thereby ti a situation where the continuing relationship between the parties is not jeopardised, unlike in litigation which can cause confrontation between the parties and can seriously damage or make impossible any future relationships. The mediation only becomes binding when a formal settlement agreement is signed by all the parties at the end of the mediation. mediation Up to that moment any party can walk away and continue with other procedures, such as court action or arbitration. Mediation clauses should always be limited to a certain time frame within which an agreement must be decided upon. Arbitration Arbitration proceedings are held in private. The parties can choose the person whom they wish to act as arbitrator, enabling them to choose a person to adjudicate their dispute who has specialist knowledge or experience. The Arbitrator works to rules agreed between the parties or, if no such rules are agreed, as laid down by the Arbitration Acts. Arbitration tends to be somewhat quicker than court proceedings but nonetheless it could still take approximately one year from beginning to end, allowing for full pleadings, disclosure of documents, witness statements, evidence etc. A simple arbitration, or one that is capable of being conducted on the basis of documents only, should be far more expeditious. y p Arbitration costs are generally lower than litigation before the Courts. An arbitrator has the same powers as a judge to award costs against an unsuccessful party. An arbitrator’s award is final and binding. There is no appeal against an arbitrator’s award. OmniPro Education & Training Page 23 of 34
  26. 26. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Expert Determination Although similar to arbitration, the role of an expert can be very different. An expert focuses more on the areas of valuation and assessment to make his/her final l ti d tt k hi /h fi l assessment. Expert determination is governed specifically by the terms of the clause appointing him/her, and therefore subject to the terms of the contract an expert may make his/her own decision on a strict commercial basis without receiving evidence or information from the parties. It is for this reason that expert determination is usually a time and cost efficient method of dispute resolution It is resolution. important to remember that the decision of an expert although binding cannot be enforced in the same way as an arbitration award. Good Leaver / Bad Leaver A good leaver / bad leaver provision can also be an effective provision to avoid costly disputes and costly p y p y litigation. If the situation arises that there is a good leaver /bad leaver, the remaining shareholders may not want him to continue to be involved in the company by being able to vote at shareholders meetings and will require him to offer to transfer his shares to the other shareholders or a third party. The price to be paid and the definition of good leaver and bad leaver is up for negotiation between the parties. OmniPro Education & Training Page 24 of 34
  27. 27. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Russian Roulette This is a situation where one shareholder is permitted to serve a notice on another shareholder, offering g either to sell his shares to the other or purchase the other’s shares, both at the same price. The shareholder receiving the notice then has the option of either buying or selling, but if he fails to make a decision within a certain period of time then the original shareholder who served the notice can require him to sell at the price specified. As the original p p p g price is one at which the original shareholder must be prepared to both buy and sell, it generally ensures that a fair price will be paid for the shares. Russian Roulette The russian roulette provision is used primarily as a means of terminating a relationship between shareholders where they cannot agree on a specific issue regarding the conduct of the business. The main disadvantage to the russian roulette provision is that should one party be in a financially stronger position than the other, he could decide to serve a notice on the other party at a price under which he knows the other party will have to sell as he cannot afford to be put in a position where he is compelled to purchase. OmniPro Education & Training Page 25 of 34
  28. 28. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Briefing Questionnaire • Please find enclosed in the Notes Pack a Briefing Questionnaire. • This questionnaire can be used as an aid when discussing with a client the possibility of entering into a shareholders agreement. • It can them be completed by the accountant and given to a solicitor as a briefing document that will allow the solicitor to prepare an initial draft shareholders agreement. • The questionnaire will need to be adapted depending on q p p g the particular situation. • If you require further information or a soft copy of this document, please contact Alan O’Driscoll of Flynn O’Driscoll. Documentation • The documentation required will depend on circumstances of each situation situation. • Along with the shareholders agreement, any of the following actions may be required: - new shares may have to be issued; - new articles may have to be adopted to coincide with the shareholders agreement; - board minutes may be required for the company. OmniPro Education & Training Page 26 of 34
  29. 29. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. • The foregoing is merely a guide and is not a substitute f professional l b tit t for f i l legal advice l d i which should be obtained should you have any queries in relation to any aspect of the foregoing. • Questions Contact details Phone: 01-6424220 Email: alanodriscoll@fod.ie Website: www.fod.ie OmniPro Education & Training Page 27 of 34
  30. 30. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Shareholders Agreement Briefing Questionnaire NO.1 GRANTS ROW LOWER MOUNT STREET DUBLIN 2 IRELAND TEL: + 353 1 6424220 FAX: + 353 1 6618918 1 OmniPro Education & Training Page 28 of 34
  31. 31. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. Company Name:________________________ 1.Parties 1.1 Who are the parties to the Agreement to be and what are their addresses? 1.2 What shareholding will each party hold? 2. Directors 2.1 Who is on the Board at present and who is to be on the board at the time of signing the shareholders agreement? 2.2 How often is it envisaged that the Board will meet? Can directors participate by phone or other electronic methods? What notice is required to be given to each director in advance? 2.3 What is the maximum number of directors allowed to hold office at any one time? 2.4 How are the directors to be nominated? Does each shareholder have the right to nominate a director? 2.5 What is the quorum for directors meetings? (Recommend a majority of the directors for example 3 out of 5) Is it one vote per director? 2.6 In the event of the Board being unable to arrive at a decision will the matter be referred to shareholders? If so, what percentage of shareholders will it take to carry the vote? 2.7 Is there to be a third party director with a casting vote? 2.8 Is there to be a Chairman of the Board? Is the Chairman of the Board to have a casting vote? 2.9 Who is to be the Secretary of the Company from the date of signing of the shareholders agreement? 2.9 Do cheques need to be signed by more than one director, and if so, up to what amount will one signature suffice? 3. Shareholders 2 OmniPro Education & Training Page 29 of 34
  32. 32. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. 3.1 What is the quorum for a shareholders meeting? (Recommend a majority of the shareholders for example 3 out of 5) 3.2 Is it one vote for every shareholder or for every share held? 3.3 What notice is required to be given to each shareholder in advance of each meeting? 3.4 Are written resolutions acceptable? 3.5 Will russian roulette apply in the event of dead lock or will there be a third party with a casting vote? 3.6 What accounts / information (if any) must the directors furnish to the shareholders on request? Do the parties want to insert a provision entitling them and their professional representatives to inspect the Company records after giving a period of notice? 3.7 Is good leaver / bad leaver to apply? 3.8 Do the parties envisage shareholders will have to provide further financing? What are the consequences for shareholders who refuse to provide further financing? 3.9 If the company issues new shares, are existing shareholders entitled to be allotted a pro rata amount of shares in proportion to their shareholding? 4. Restricted Transactions 4.1 What percentage of shareholders need to consent to a restricted transaction before it can be performed? 4.2 Which of the following shall be deemed to be a restricted transaction? 1. Subscription for shares in any company or purchase or otherwise acquire any assets of any nature whatsoever other than such assets as the Company shall necessarily require for the Business in accordance with the terms and provisions of this Agreement. 2. Make any public offering of any shares of the company. 3. Creating or issuing or agreeing to create or issue any share or loan capital or debenture or giving or agreeing to give any option in respect of any share or loan capital or debenture or consolidate, sub-divide or alter any of the rights attaching to any of the Company’s issued shares or reduce the Company’s share capital or 3 OmniPro Education & Training Page 30 of 34
  33. 33. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. repay any amount standing to the credit of any share premium account or capital redemption reserve fund or capitalise any reserves or otherwise re-organise the Company’s share capital in any way or create any new class of shares. 4. Entering into any transactions or contracts or series of transactions or contracts whereby the business would be controlled otherwise than by the board. 5. Passing any resolution for the winding up of the company, save where winding up is necessary by reason of insolvency or enter into any compensation or scheme of arrangement with the company’s creditors. 6. Creating any fixed or floating charge, lien (other than a lien or other form of security arising by operation of law) or other encumbrance over the whole or any part of the Business undertaking, property or other assets of the Company or of any subsidiary 7. Entering into any guarantee or indemnity or grant any loan. 8. Entering into any material contract or transaction 9. Disposing of or factoring any of the Company’s book debts. 10. Granting any service contract to any Director. 11. Allowing the total remuneration payable by the Company to the Directors in respect of any financial year to exceed such amounts as would be reasonable and normal in relation to commercial practice generally in Ireland. 12. Making any material change in the nature of the Business or in the conduct of the Company’s affairs. 13. Appointing any Director/Alternate Director save for such appointments made pursuant to this Agreement. 14. Make any material change in the Business including changes effected by acquiring or incorporating or investing in any other company not engaged in the Business or by disposing of a material or substantial part of the Company’s assets. 15. Enter into any contracts, arrangements, or transactions except in the ordinary course of its business and upon an arms length basis or whereby it would receive less than a fair commercial price for any of its products or services, or would pay more than a fair commercial price for any product or service supplied to it (less customary trade discounts and allowances in each case). 4 OmniPro Education & Training Page 31 of 34
  34. 34. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. 16. Make any loan or advance or give an indemnity or guarantee or provide any credit, advance monies or extend credit to customers, suppliers or subcontractors other than on an arms length basis and in accordance with the Company’s normal trade terms. 17. Borrow any money or enter into any capital expenditure exceeding € [monetary amount] on an annual basis. 18. Pay or agree to pay any royalty or commission (other than normal trade royalty or commission) or enter into any contract or transaction whereby any person other than full time employees of the Company would or might receive remuneration calculated by reference to the income or profits of the Company. 19. Make any loan or advance to employees or directors. 20. Change its name or carry on trade or business under any name other than [Company name]. 21. Change its financial year. 22. Pass any resolution of its members in a general meeting, the effect of which would be to alter in a material way the nature of the Business of the Company and/or alter the Memorandum and Articles of Association in any way. 23. Enter into any onerous or unusual contracts, arrangements, or understandings with regard to the business or assets of the Company. 24. Enter into any hire purchase agreement, credit sale agreement or equipment leasing agreement for any purposes whatsoever if as a result the aggregate liability of the Company would exceed €[monetary amount] on an annual basis. 25. Acquire by purchase, lease or otherwise any freehold or leasehold property or dispose of or carry out any development upon any part of its property or assets. 26. Change its auditors, solicitors or bankers. 27. Employ or retain the services of any person at an annual basic salary of in excess of € [monetary amount]. 28. Except for debt collection in the ordinary course of business in an amount not exceeding €[monetary amount] and claims against the Company which are covered by insurance, commence, settle or defend any action or proceedings brought by or against the Company or take any other material step in the conduct or defence of any such material litigation involving the Company. 5 OmniPro Education & Training Page 32 of 34
  35. 35. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. 29. Acquire, incorporate or invest in any other company or business. 30. Declare or pay a dividend. 5. Non-Competition 5.1 Do you wish to include a restriction on directors/shareholders in relation to competition with the business when they resign as directors or cease to be shareholders? How long is this restriction to last, and over what territory? What percentage of shareholders is needed to vote otherwise in order to invalidate this provision for any given director/shareholder? 6. Intellectual Property 6.1 Does the Company have Intellectual Property which it wishes to protect? 7. Selling of Shares by Default 7.1 What events of default, (if any) are required to be included in the Agreement? These may include default relating to the adverse financial position of shareholders (including bankruptcy), shareholders being in material breach of the Memorandum and Articles of Association of the Company. 8. Transfer of Shares 8.1 Is there an initial number of years for which a shareholder may not transfer their shares in the Company? If they leave during this period, how much should they be paid for their shares? 8.2 Will shareholders wishing to sell their shares have to offer the shares to the other shareholders first? 8.3 Are shareholders entitled to sell to third parties at any stage? 9. Share Value 9.1 How is the value of shares to be calculated if the parties cannot agree (by chartered accountant, or do the parties want another method of calculation)? 10. Drag Along 10.1 What percentage of the shareholders are needed to make drag along provisions kick in? 11. Tag Along 11.1 Is Tag Along to apply? 6 OmniPro Education & Training Page 33 of 34
  36. 36. A Personalised CPD Certificate of Completion will be forwarded to you upon completion of this course. These notes do not serve as proof of completion alone. 12. General Power of Attorney 12.1 What percentage of shareholder votes will it take to nominate an attorney with power to transfer a non-complying shareholders stake? 13. Business Plan 13.1 Do the parties intend to have a business plan incorporated into the shareholders agreement? How often is it to be renewed? 13.1 Do the parties intend to have a business plan incorporated into the shareholders agreement? How often is it to be renewed? 14. Insurance, Death, Retirement 14.1 Is Keyman Insurance necessary? If so, against whom is it being taken out? 14.2 What is to occur on the death of a shareholder? Do the shares vest in his estate? Do the company or remaining shareholders have the option to buy them? 14.3 What is to happen on the retirement of a shareholder? 15. Dispute Resolution 15.1 What dispute resolution mechanism will be included? - Mediation; - Arbitration; - Expert Determination; 16. Miscellaneous 16.1 What is the preferred choice of jurisdiction and law? 16.2 Is the Shareholders Agreement to take precedence over the Articles of Association in case of conflict between both? Will it also be incumbent on the shareholders to hold a meeting for the purposes of eliminating the conflict? The foregoing is merely a guide and is not a substitute for professional legal advice which should be obtained should you have any queries in relation to any aspect of the foregoing. If you have any queries in relation to the content of this article please contact Alan O’Driscoll whose contact details can be found at www.fod.ie. 7 OmniPro Education & Training Page 34 of 34

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