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Advice on a Messy Shareholder Agreement

October 28, 2010

I worked this week on some advice on a proposed shareholder agreement that had been provided to a client of ours.

According to our instructions, there were quite a few disparities between the deal that our client thought had been done, and the wording of the shareholder agreement. Some problems included:

(a) shares were required to be allotted to him, but they were already allotted in May 2010;

(b) the directors were charged with managing the day to day running of the business, when it had been agreed that this would be the responsibility of our client's management company;

(c) future funding would be by the shareholders equally, when our client was not meant to be called upon for capital contributions;

(d) there was a weird put and call options in relation to the sale/purchase of shares in the event of a dispute, which we recommended should be deleted altogether; and

(e) the mechanism to allow a shareholder to sell his/her/its shares was overly-complicated when a very simple formula would suffice.

The client is going off to have a meeting with the shareholders to try to get agreement on a few ideas which should result in a much simplified version #2 of the agreement, which we will again review

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