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Jo C.
Jo C., Barrister
Category: Law
Satisfied Customers: 32086
Experience:  Over 5 years in practice
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Further to my last question. I'm setting up a start up and

Customer Question

Further to my last question. I'm setting up a start up and have drafted a Shareholder's agreement using a standard template from the web.
We've inserted the following custom clause and would like to check it doesn't 't invalidate the contract or expose us to risks we've not considered.
16. Limitation to Dividend Rights
16.1 The Shares referenced in this Agreement shall only issue dividend payments to Shareholders provided that they:
(a) have an executed Company Director’s Service Agreement and qualify for dividends under the terms of their Director’s Service Agreement;
(b) have not provided written notice to resign as a Company Director;
(c) have not been required to leave their Director role as a result of Sustained Absence.
16.2 If one or more of the events listed in 16.1 should occur then 100% of dividend payments will be distributed between the remaining Shareholders, in proportion to the Shares that they hold. For example, if Directors A, B and C each have a Shareholding of 20 Shares and Director A breaches one of the requirements listed in 16.1, then Directors B and C would each receive 50% of dividend payments.
16.3 In the event that a Director should cease to qualify for dividend payments for any of the reasons listed in 16.1 they would remain eligible for the voting and ownership rights associated with their Shares, subject to the provisions of their Director’s Service Agreement.
16.4 For the avoidance of doubt, clause 16.1 shall not apply if a Director has been dismissed from the Business. In this situation they shall retain the full share rights unless they have been dismissed for a disciplinary matter which their Director’s Service Agreement specifies should result in the forfeiture of their Shares.
16.5 In the event of a conflict relating to clause 16 the Shareholder’s Director’s Service Agreement shall take precedence.
Question: Is this clause going to be legally binding as it stands? Will we need to include similar language in the company’s memorandum and articles of association?
Submitted: 3 years ago.
Category: Law
Expert:  Nicola-mod replied 3 years ago.
I've been working hard to find a Professional to assist you with your question, but sometimes finding the right Professional can take a little longer than expected.
I wonder whether you're ok with continuing to wait for an answer. If you are, please let me know and I will continue my search. If not, feel free to let me know and I will cancel this question for you.
Thank you!
Customer: replied 3 years ago.

Hi Nicola,

That's disappointing. Can you please cancel my subscription?

I'd appreciate it if you would confirm that this has been done.