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Unanimous Shareholders Agreements Printable Version

What is a unanimous shareholders agreement?

A "unanimous shareholder agreement" is an instrument that allows the powers, duties and liabilities of the directors to be assumed by the shareholders, either generally, or in respect of specific acts, or even for a specific time period. This entirely new and very practical concept is commonly referred to as a "USA". A USA may be used to protect directors from personal liability in appropriate situations. In this way, the Companies Act gives statutory recognition to the fact that accountability should match authority. Thus, to the extent that the Companies Act allows authority for the company's decisions to be transferred from the directors to the shareholders, it provides for accountability for the consequences of those decisions to also be transferred from the directors to the shareholders. In one-man companies (which are now allowed under the Companies Act) an appropriate written declaration by the single shareholder is deemed to be a USA.

In what situations might one use a unanimous shareholders agreement?

One use for a USA is in connection with closely held companies where the shareholders wish to direct some or all aspects of the company's management. In such circumstances, the shareholders that assume the authority for the company's management should bear the potential liabilities that would otherwise be borne by the directors. This will be appropriate, for example, with many one-man companies. Similarly, USAs may be used within a group of companies if the subsidiaries (or certain aspects of their management) are effectively controlled by their parent companies.

 

A USA may also be particularly useful in connection with decisions as to whether the company should engage in one of the several types of transactions which expose directors to personal liability, when issues as to the company's insolvency might arise. For example a USA might be advisable where a company is considering a transaction involving the provision of financial assistance that may be challenged. Since it is often the shareholders who are directing that the assistance be provided, it may be fair to shift the authority and liability to the shareholders by using this device. Another example is the decision to declare a dividend when there is a question regarding the company's solvency. Again, it may be fair to use a "USA" to shift the authority and the potential liability for declaring the dividend from the directors to the shareholders.

 

It is important to note that the mere fact that a "unanimous shareholders agreement" is being employed to protect the directors from potential liability does not mean that the solvency requirements of the Act should be ignored. However, it does mean that the complexities of determining whether the company has passed the necessary solvency tests can be transferred to the shareholders that are benefiting from the transaction.

 

One obvious limitation is that a "unanimous shareholders agreement" can only be used when all the shareholders agree to do so. Another less obvious limitation, but one that it is important for directors to recognize, is that a "USA" only provides protection in relation to liabilities arising under the Act. It will probably not provide any protection from other types of claims against directors, such as those arising under Tax legislation. Shareholders who are considering a USA should check what insurance cover is in place.

 

Whether shareholders that have assumed the rights, powers and liabilities of directors under a USA can rely on policies of insurance which have been put in place to protect directors and officers will depend on the precise language used in the relevant policies.

 

There are some drawbacks to the use of a USA which have formed part of the recommendations made to the Government for amendment of the Companies Act. It is  therefore important to use the USA judiciously where shareholders may be concerned about attracting liability which might otherwise attach to directors.

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