Archive for the ‘partnerships’ tag
Corporate Partnerships: Made in heaven or hell?
An agreement between two companies to work together can take a number of different forms. One could be a stand-alone joint venture as a partnership of equals in a newly set-up, limited company.
Another could be a company taking a minority shareholding in an existing company. Alternatively two companies could remain separate and use a simple contractual co-operation agreement.
This month, I want to highlight the main issues to be considered when two companies come together in a limited liability company in which one party has a minority shareholding.
In such cases the legal relationship between the participants and also between them and the company – which in law is a separate legal entity – is typically governed by two documents: the articles of association of the company (‘the articles’) and, usually, a separate shareholders’ agreement (‘an agreement’).
A minority shareholder will be concerned to reduce the risk of possible abuse by its majority partner shareholder of its power, especially when it has no presence on the company’s board of directors. It will therefore seek to agree
a set of rights and protections to address this risk. This might include the right to veto major decisions and an exit route from the partnership.
Having agreed these areas it is then necessary to find the best way to protect them using the articles and an agreement.
Simply put, the articles are the company’s official rulebook. They regulate the rights of the shareholder in relation to the company and are subject to company law and statute.
In contrast, agreements regulate the personal aspects of the relationship between individual shareholders and are governed by the ordinary rules of contract. In addition the articles are a public document; an agreement generally is not.
A typical way in which minority shareholders may be protected in the articles is if the company’s shares are divided into different classes with special rights attaching to those held by the minority shareholder. These rights can be recognised in the articles, be used to block particular resolutions and can only be changed with the consent of the holders of that class of shares. Another way is the weighting of voting rights for minority shareholders on particular matters.
An agreement can also be used to set out matters which seek to protect minority shareholders.
It is common to specify in the agreement that in the event of conflict between it and the articles the agreement is to prevail.
Importantly, an agreement must not seek to limit a company’s statutory right to change its articles or, for example, increase its share capital. Such limits
are likely to be held to be unenforceable against the company and/or its directors. Whether or not the decision is made to include the protections in either one or the other only or in a combination of both, the key aim is to ensure that each of their provisions are compatible.
For further information contact Peter Billyard on (01635) 521212, or peter.billyard@clmlaw.co.uk