A checklist of conflicts that can be avoided in successful shareholder agreements

BVWire–UKIssue #35-1
February 1, 2022

Buy-sell agreements frequently fail to meet all the needs of all shareholders over time. In some cases, the valuation methods (or an actual valuation conclusion) are at fault, but, more commonly, the problem is that scenarios were overlooked or the agreement is unclear on essential issues.

A new short checklist published by Siobhan Williams of the firm Darwin Gray, available at Lexology.com, should remind business valuers and their shareholder clients of many of the factors where buy-sell agreements frequently end up in disputes. Gray highlights the following essential topics in “Do I Need a Shareholders Agreement?”:

  • Obligations or restrictions on what each shareholder can and cannot do, both whilst they are a shareholder and afterwards;
  • Treatment of dividends and relative shares of any payouts;
  • Individual shareholder rights to any new shares that may be issued;
  • Processes should a shareholder wish to sell or transfer shares;
  • Terms that defines which shareholders may be appointed as a director; and
  • Dispute resolution methods, whether compulsory or voluntary, in the event of a disagreement.

BVWire—UK would add a number of valuation-related topics to Williams’ checklist, since those issues frequently are at the center of disputes that end up in the UK commercial courts. Many experts have noted that mandating a regular review of shareholders’ agreements by all signatories can often forestall future animosity or legal action.

Please let us know if you have any comments about this article or enhancements you would like to see.