Shareholders Agreement – Impact of Covid-19

shareholders agreement

Shareholders Agreement vs Lockdown

A shareholders agreement would likely not include clauses relating to the Covid-19 pandemic, which has severely affected the economy. The significant economic uncertainty has affected business owners and partnerships. This calamitous situation has also negatively impacted staff, whether or temporary or permanent contracts.

Furlough has been enforced on some members of staff, whereas others have been laid off, particularly those on temporary contracts. Even if some employees are able to work from home and payroll remains unchanged, the climate of uncertainty has affected absolutely everyone.

Shareholders Liability

The government has promised to assist businesses in the UK, in order to survive this catastrophic phase. But directors, officers and shareholders need to continue to exercise care, diligence and act in the best interests of the business. If they breach legislation or clauses in the shareholders agreement, they could be liable.

The coronavirus pandemic has been globally overwhelming and the lockdown in the UK happened almost overnight. We have had to deal with reduced dividends or complete loss of business. As hard as it may sound, shareholders are still under obligation with their businesses. These are undeniably hard times to make crucial and sometimes radical decisions in business, particularly if staff are directly involved.

Government Protection

Swift decisions may impact both staff and shareholders quite harshly. There are new laws and regulations to protect business owners at present. For instance, residential and commercial landlords cannot evict tenants at present.

It was the government’s decision to shut the doors of non-essential shops, cafes, bars and restaurants. The government has also enforced social distancing, resulting in many unable to get to work. But the government has also promised to assist business owners, including SMEs and the self-employed.

Shareholders Agreement Disputes

Because of the challenges business owners are facing at the moment, one problematic are is competency of leadership during these unprecedented times. A shift in leadership could potentially raise disputes among shareholders. Disputes could include contested share value.

Shareholders could exercise the right to buy or sell shares or go into liquidation or insolvency. Whether these are incorporated in the shareholders agreement or not, very few, if any, will have clauses referring to a lockdown relating to a global pandemic.

Talk to us about any concerns and issues covered in your company’s shareholders agreement. These could lead to litigations of which you might have very little, if any funds at all. We’d like to hear from anyone concerned about the lockdown restrictions and what rights they have in relation to their company’s shareholders agreement. SG

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