SHAREHOLDER’S AGREEMENT WITH DEADLOCK CLAUSE

WHEN TO USE THIS DOCUMENT

 A shareholder’s agreement is an agreement between the shareholders in a company. It is a very important agreement because it allows the shareholders to agree certain very important aspects about their shares and the company and how it is run. Every company should have a shareholder’s agreement.

 Shareholders are investors into a company and a shareholder’s agreement allows them to set down basic details relating to the running of the company. For example, the agreement can decide what the directors can do when running the company and can control what can be done unless shareholders agree (take out loans etc).

 This agreement also has a deadlock clause. Generally this type of clause is inserted to explain what can be done if a deadlock occurs. A deadlock occurs when you have a situation with shareholders where a vote is absolutely split about a particular issue or decision. For example, there are 4 equal shareholders (each holding 25%) and 2 shareholders (i.e. 50% of the total vote) vote in one way and the remaining two shareholders (i.e. the other 50% of the total vote) vote in another way.

 The deadlock clause offers a number of options for dealing with a deadlock occurs and provides an agreed timescale to resolve matters. It also includes mediation and sale of shares options.

 The agreement should also cover issues about the shares themselves, for example, what happens if one shareholder wants to sell their shares or dies.  This particular agreement contains pre-emption rights which mean that shares must be offered to existing shareholders first before they are offered for more general sale.

 The document is intended to protect both the company and the shareholders so that everybody is aware of their obligations. It is equally important whether there it is a small company with just two shareholders who are also director or in a larger company with more shareholders who are not directors.

WHAT DOES IT CONTAIN?

 The usual information you would expect to see in terms and conditions like these which you customise, including:-

• Company details.
• Shareholder details.
• Business of the company.
• Management decisions and responsibilities - issues that need the consent / agreement of Shareholders.
• Deadlock clause – when shareholder’s can’t agree.
• Pre-emption rights and procedure and transfer of shares.
• Dividends.

DO NOT USE THIS DOCUMENT

• If you need a basic shareholder’s agreement or one that deals with the sale of minority shares (drag-along)– please see our other documents.

HOW TO USE THIS DOCUMENT

 This is a MS Word document and is easy to use. The document uses blue text to provide extra guidance and notes and green text where you will customise your document to suit the circumstances in which it is used.
 

File Type: Word File