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Drafting clear, enforceable T&Cs to protect a business in its dealings with customers and suppliers.
FAQs
What does it mean for a director or shareholder to “exit” a company?
An exit occurs when a director or shareholder leaves the business, either by:
Resigning as a director
Selling or transferring their shares
Being removed or bought out
In practice: If a founding director decides to step down and sell their shares to the remaining owners, this would be considered an exit.
How can a shareholder sell or transfer their shares?
Share transfers are usually governed by the company’s articles of association and any shareholders’ agreement. These often include:
Pre-emption rights (offering shares to existing shareholders first)
Restrictions on selling to third parties
Valuation mechanisms
In practice: If you want to sell your shares, you may first need to offer them to existing shareholders before approaching an external buyer.
Can a director be forced to leave the company?
Yes. A director can be removed by shareholders under the Companies Act 2006, or required to step down under the terms of a shareholders’ agreement.
In practice: If a director is underperforming or causing disruption, shareholders holding a majority of voting rights may vote to remove them from office.
How is the value of shares determined on exit?
The valuation method is often set out in a shareholders’ agreement and may involve:
An agreed formula (e.g. multiple of profits)
Independent valuation by an accountant
Discounts in certain circumstances (e.g. for a departing shareholder)
In practice: If a shareholder leaves under difficult circumstances, the agreement may provide for their shares to be valued at a discount compared to market value.
What happens to ongoing obligations after exit?
Even after leaving, directors or shareholders may still be bound by certain obligations, such as:
