Can Shareholders Agree to Remove the Right to Petition a Company Wind Up?

Shareholders

A shareholders’ agreement represents one of the most pivotal documents any company can have. It is there for the express purpose of circumventing common – and potentially disruptive – disputes from arising between shareholders. Even if those shareholders are family or good friends, any experienced corporate solicitor will stress the necessity of a shareholders’ agreement for protecting the company against the unknowns of the future.

In essence, it cannot be guaranteed that problems won’t arise when the stakes are high, and shareholders have – and always will have – a major financial and emotional stake in the business. Having a shareholders’ agreement in place, however, can guarantee that whatever those issues are, they will have the smallest possible impact on the business’ ability to keep going through times of tension or unrest.

What do shareholder agreements cover?

These agreements can shield the company against a long list of potential problems. They can identify matters that will require unanimity, as well as matters that will only require the majority of shareholders to agree upon. They can also cover matters such as selecting board representation, share valuation and the transfer of shares to new shareholders.

They can also clearly lay-out the proper course for dispute resolution – something that will prove invaluable if it is called into question. While, for members raising a dispute, this can feel like a roadblock, the agreement’s value for maintaining structure and fairness throughout dispute resolution offers the greatest benefit to the company as a whole.

But what happens when a shareholder wishes to petition the decision to liquidate, or, in other words, ‘wind up’ – the company?

The right to petition for the ‘winding up’ of a company

All shareholders have the right to bring a ‘just and equitable’ winding up petition to the court. In this scenario, a court will consider the application and decide whether closing or ‘winding up’ a company is the right course of action. They will also deliberate over whether taking such action would be against the interests of one or more of the company’s shareholders.

While shareholders agreements are there to ensure that disputes are handled internally, and according to a very specific framework – and, sometimes, to stipulate what matters can and cannot be raised by shareholders – there are some matters that exist outside of the agreement’s reach.

Currently, even if shareholders’ agree to it, any clauses that attempt to prevent minority shareholders from raising a petition on the basis of “unfair prejudice” are unenforceable within the courts. In other words, shareholders cannot remove the right to bring an unfair prejudice petition, including a petition to wind up the company. A member’s statutory rights overcome any stipulations within the agreement that could infringe upon it.

For this reason, it is vital that you understand these statutory rights before the shareholder’s agreement is put together, so that you are never operating under any false assumptions or any stipulations that cannot be upheld in court.

This is, of course, a prime example of the sort of task that needs to be done under the guidance of your corporate solicitor. Understanding the nuances of the laws that directly impact core documents, like the shareholders’ agreement, is essential to your ability to understand your rights, and the rights of all other members. You can click here to find out more about how corporate solicitors can help your company to create a workable roadmap for the future.

It is impossible to see to the needs of your business while interpreting the many laws that impact it but, without a solicitor, it is likely you will find out when it is too late.

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