When drafting a shareholders’ agreement, it is always important to include an exit clause. This clause outlines the conditions and process for shareholders to exit the company. An exit clause is necessary to ensure that shareholders are not ‘locked in’ to the company indefinitely, which can cause tension and disagreement in the future.
There are various reasons why a shareholder may need to exit the company; they may want to retire, pursue other opportunities, or simply need to liquidate their shares. Regardless of the reason, the exit clause in the shareholders’ agreement should ensure that the process of exiting is smooth and fair for all parties involved.
The exit clause in a shareholders’ agreement generally outlines three key aspects:
1. Conditions for Exit
This outlines the specific conditions under which a shareholder can exit the company. For example, a shareholder may be able to exit if they have reached retirement age or if they have a medical condition that prevents them from carrying out their duties within the company. It may also outline scenarios that may trigger a buyout, such as a shareholder’s death or bankruptcy.
2. Process for Exit
This section outlines the process for a shareholder to exit the company, including how the valuation of the shares will be determined, and any other specific conditions of the exit. For example, the shareholder may be required to give a certain notice period or sell their shares to a specific buyer.
3. Restrictions on Exit
This section outlines any restrictions on the exit process, which may include non-compete or non-solicitation clauses. These restrictions may protect the interests of the company and the remaining shareholders.
Including an exit clause in a shareholders’ agreement is crucial to protect the interests of shareholders and the company. An exit clause can help to reduce the risk of disputes and disagreements down the line. It is important to ensure that the exit clause is accurately drafted and reflective of the shareholders’ needs and expectations.
In conclusion, an exit clause is a necessary component of a shareholders’ agreement. It ensures that the process of exiting the company is clearly defined, fair for all parties, and protects the interests of the company and shareholders. As a professional, I recommend that any shareholders’ agreement should include an exit clause to minimize future disputes and protect the interests of all parties involved.