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The simple way to avoid shareholder disputes

When you set up a company, you need to register your business. This could be as a sole trader, limited company, or partnership. Most limited companies are limited by shares: i.e. owned by shareholders who have certain rights.

Companies that are limited by shares need to complete a Statement of Capital; this is a declaration to the government of the total number of shares the business has, the name and addresses of the shareholders, and the share value.

The requirement to provide a Statement of Capital was introduced on the 1st of October 2009 when the Companies Act 2006 came into full effect, and Companies House Form IN01 should be completed during the company formation process.

Companies limited by shares must also include a Statement of Capital as part of their annual confirmation statement and whenever new shares are issued, bought back by the company, or changed in any way. This keeps Companies House up to date. Where a company has several shareholders, it’s wise to set up a Shareholder Agreement.

This is a legal contract between all the shareholder parties that lays out how they will work together. It is not compulsory to set this up, but it helps protect the investments made by the shareholders to the company and establishes good relationships and practices.

Shareholder disputes can be costly and, without an agreement in place, partners could be powerless and vulnerable. It provides protection for each shareholder’s assets from potential legal action taken by fellow shareholders and should help to resolve problems before they become too big to handle and start affecting the business.

A Shareholder Agreement would usually cover the following:

How the business is to operate

Shareholder rights

Responsibilities and obligations

Liabilities

Restrictive covenants

What would happen, for example, if a shareholder decided to pull out?

If there was no Shareholder Agreement in place, that shareholder could sell their shares to anyone, which may not be in the best interests of the company and could be someone the other shareholders do not know. A Shareholder Agreement can also outline how directors in the company are appointed. As solicitors we spend time assisting shareholders who have got into disagreements with each other. These situations are obviously more complicated, expensive, and time-consuming to resolve where there is no Shareholder Agreement in place.

The setting up of a Shareholder Agreement will help avoid any disputes, setting out the relevant processes and procedures, and providing clear, written guidance from the outset to help keep things on an even keel.

NEW HOME, SAME CODA

CODA Studios have made the move to Sheffield city centre.

After more than a decade based in Kelham Island, we have now relocated our head office to the heart of Sheffield.

You can find us at: Sellers Wheel, 151 Arundel St Sheffield City Centre S1 2NU3 Sheffield station – 5 minutes’ walk

ANDY FROGGATT – ROYSTON PARKIN