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Senior Partner
Senior Partner, Solicitor
Category: Law
Satisfied Customers: 13323
Experience:  Solicitor with more than 30 years experience
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I am doing a shareholder agreement. 2 of the directors are

Customer Question

I am doing a shareholder agreement. 2 of the directors are brothers, the third director is me. Can i do anything to class their vote as 1 vote as concerned they may just outvote me.
Submitted: 3 years ago.
Category: Law
Expert:  Stuart J replied 3 years ago.

Hello, I am Law Denning and I am a practising solicitor in a High Street practice. I have been an expert on this website in UK law since 2008. During that time, as you appreciate, I have answered thousands of questions from satisfied users on a variety of subjects. Because we are all in practice with clients and court and other users, I might not always respond in minutes, particularly evenings and weekends. Please bear with me in that case

It is my pleasure to try and assist you with this today. Please bear with me
while I gather some further information from you in order for me to be able to
advise you fully.

Unless I have all the facts that I need, my answer would not be accurate.

-Could you explain your situation a little more?
Customer: replied 3 years ago.

There are 3 of us, 2 are brothers. We are setting up a company and doing a shareholders agreement. Nothing amazing, we are all friends etc...my only concern is this, can i limit the voting power of the 2 brothers? I am concerned that they may decide one day to outvote me. I have 50% of the company as I am inputting the intellectual property etc...the 2 brothers have 25% each.

Expert:  Stuart J replied 3 years ago.
Are you concerned about directors rights or shareholders rights. They are totally seperate
Customer: replied 3 years ago.

I guess both. I just don't want to be in a position whereby they can simply outvote me. My concern is that I will put all the work in such as intellectual property and they go against me

Expert:  Stuart J replied 3 years ago.
In which case you need both directors service agreements and shareholders agrements.
The shareholders voting doesnt need to be covered as it is already taken care of in the numbers of shares which are 25,25,50.
Customer: replied 3 years ago.

Sorry for late reply. So when you say The shareholders voting doesnt need to be covered as it is already taken care of in the numbers of shares which are 25,25,50. Are you saying that the brothers who have 25% each cannot outvote me?


 


Will do a service directors agreement also.


 


Do I need to class the shares i.e. Class A or Class B.


 


Thank you

Expert:  Stuart J replied 3 years ago.
Share classes are not my area.

I am going to opt out of this for another expert to consider. Please do not reply or it comes back into my inbox. Another expert will pick it up at some stage. It is now open to all experts.

Expert:  Senior Partner replied 3 years ago.
Hi my colleague asked me to respond. If you have a 50/50 deadlock then you cannot be out voted as shareholder and they cannot remove you from the board but the company is potentially deadlocked. At board level you will be able to be outvoted and management is in the hands of the directors. Two solutions

either have A and B shares and give your shares say the A's 2 votes for everyone of their on certain resolutions such as to remove or appoint a director - that will give you control; or

provide for a list of things that cannot be done without your consent or if more politically acceptable without the consent of all the shareholders.

I am afraid shareholders agreements tend to be complex and difficult to get properly balanced

Customer: replied 3 years ago.

Thank you senior partner. I apologise for delay in replying.


 


The provision of a list of things that cannot be done without all in agreement or myself seems to be the easier way forward.


 


The other 2 directors mentioned an authorised share capital of 2000 shares divided into 1000 class A ordinary (voting) 1000 class B ordinary (Non voting) 105 shares issued to date and fully paid


 


They suggested


 


1 class A share and 50 class b for me


1 class A Share and 25 class b for another


1 class A Share and 25 class b for another


 


As i say, i believe the list method would be more easier to manage. I guess we can include something to say that the list can be amended as and when needed?


 


I will await your response and rate the answer


 


Thank you

Expert:  Senior Partner replied 3 years ago.
That is clearly intended to be structured so that any 2 can outvote the third ( ie you can be outvoted) regardless of underlying economic interest. This is unnecessary as there are three board members so the management is not deadlocked. Ask them why they think this is necessary. It suggests they are operating as a team and you would become effectively a minority

You would need to have a list of things that can only be done with consent of all three but you could still be removed a s director unless you provide that on a vote to remove you , your shares have more votes.

You could just provide that you are entitled to remain a director whilst you have shares.

Bear in mind however that whatever a shareholders agreement says you cannot overrule the powers under the companies act so for example a simple majority of votes can remove a director even if it would be a breach of contract.
Customer: replied 3 years ago.

Thank you.


 


I noticed from the paperwork that out of 2000 allocated shares, fully paid, it states 105 have been issued. If you total the shares allocated to all 3 of us, it totals 103. Please forgive me for this, does this mean that there are 2 shares outstanding that have not been declared?


 


 

Expert:  Senior Partner replied 3 years ago.
Sounds like it yes. There should be a return of allotments filed at companies house to show what shares have been issued. Also the company should have a shareholders register that shows who owns what. It could be a mistake if there were subscriber shares which are the ones signed up to by the promoter of the company but are often never issued.
Customer: replied 3 years ago.

Thank you.


 


I t has been a learning curve and good to converse with you.


 


If i need more assistance, can I come back to you?


 


I will rate as excellent

Expert:  Senior Partner replied 3 years ago.
It has been a pleasure. You can always post follow up questions or send questions marked for my attention.

Just so you are aware the experts are independent of the site and we are not always on line - most are practising lawyers. I am in fact travelling a lot over the next few weeks so may not always be available. I will always respond eventually but I though I should mention this.

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