Maritime Law Focus: Shareholders’ agreements

Whether it’s shared ownership of a vessel, offshore energy, shipping, marine construction or a family-run boatyard passed down through generations, the success of such businesses hinges on a clear understanding of well-defined roles amongst owners.

A shareholders’ agreement is a legally binding contract between the shareholders in a company that deals with matters such as how the company is run and what happens if things change or go wrong.

It does not replace the company’s articles of association, but sits alongside the articles and reduces ambiguity, protects investments and ensures efficient decision-making.

Owners of marine businesses that do not have a comprehensive shareholders’ agreement should consider whether an agreement could be of benefit in light of the following:

1. Capital investment and ownership of assets

Marine businesses which require substantial capital investment, whether in vessels, equipment or technology, can avoid misunderstandings and disputes over ownership of assets and distribution of profits by clearly setting out each party’s contributions and ownership rights. In the case of multiple owners of a vessel, for example, disagreements can easily arise regarding operational schedules, maintenance responsibilities, financing decisions and ultimately, the sale of the vessel.

2. Succession planning and exit strategies

Well-drafted shareholder agreements will provide a framework for what happens when a shareholder wants to sell their shares, retires or dies, reducing ambiguity, disputes and delay and ensuring the continuity of business operations.

There is a strong tradition of family-owned businesses in the marine sector and skills and knowledge are passed down through generations, with an expectation that the younger generation will one day take over. This gives rise to a huge scope for disagreement, when there are differing opinions on business strategy, personal finance needs and succession planning. Such disagreements in the context of family-owned businesses are heightened by the emotional dynamics. A shareholders’ agreement can provide certainty, giving clarity to management roles and operational responsibilities, ensuring fair remuneration for family members involved and setting out the circumstances under which family members can join and leave the business.

3. Minority shareholdings

Minority shareholders typically have less influence over company decisions due to their smaller shareholding. Provisions in shareholders’ agreements can protect minority shareholders by, for example, ensuring they are not sidelined in major business decisions that could impact their investment (such as selling the business or appointing directors); pre-emption rights giving minority shareholders the first opportunity to buy new shares; and on the board by giving them a voice at board level.

4. Roles and responsibilities

A shareholders’ agreement can formalise roles of individuals with different or complimentary skill sets (eg technical, commercial and finance) and can ensure expectations are clear.

5. Longevity of the business

A shareholders’ agreement promotes discussion about the long-term strategy and direction of the business. Being clear on such matters at the start of a business relationship can avoid misalignment of the parties’ interests and intentions further down the line.

6. Dispute resolution

A shareholders’ agreement can include dispute resolution mechanisms such as mediation and arbitration to avoid lengthy and expensive court proceedings in the event of a dispute. Given the international nature of many marine businesses, this is particularly important where the parties are based in different jurisdictions.

A shareholders’ agreement will typically cover some or all of the following, depending upon the parties’ circumstances and relationship and nature of the business:

• Ownership and transfer of shares
• The rights and obligations of shareholders and any specific rights of minority shareholders
• The respective roles and expectations of shareholders
• Dividend policy
• Decision-making processes
• Mechanisms for dispute resolution
• Exit and buy-out provisions
• Non-compete and confidentiality clauses

A well-drafted shareholders’ agreement can be the anchor to secure the stability and growth of a business and protect the interests and investments of shareholders.

If you are launching or scaling a marine business, having these conversations and setting expectations at an early stage formalised in a written agreement aligns the expectations of the parties from the start of a relationship and provides your business with a solid foundation for success.

Ocean Legal is a specialist law firm that provides tailored legal solutions to the commercial marine sector for a price agreed upfront. | www.ocean-legal.com | contact@ocean-legal.com

This article does not constitute legal or other professional advice. Readers should seek appropriate legal guidance before coming to any decision or either taking or refraining from taking any legal action.

Ocean Legal is a specialist law firm that provides tailored legal solutions to the commercial marine sector for a price agreed upfront. | www.ocean-legal.com | contact@ocean-legal.com.

This article does not constitute legal or other professional advice. Readers should seek appropriate legal guidance before coming to any decision or either taking or refraining from taking any legal action.