Business inheritance using the Articles of Association and Corporate Agreement
Often, business growth is impossible without attracting partners in its individual areas / projects / companies. And relations with such partners must be pre-regulated and legally secured, which is guaranteed to minimize the risks of corporate conflicts of such a business and ensure the protection of its Founder.
Our many years of experience proves that there are enough legal instruments in domestic law for reliable regulation of partnership agreements.
However, combinatorics of their application are always required to fulfill legal restrictions, mutual leveling of design flaws and to obtain an optimal effect.
By way of illustration.
The founder of the business decided to include this top manager in the main LLC in order to increase the motivation of the key manager and ensure the possibility of his departure from operating activities. The new participant received 20% in the authorized capital of the Company on the following conditions:
mandatory quarterly distribution of dividends;
prohibition on alienation of the share to third parties in the absence of the written consent of the Founder;
the opportunity and obligation to return the share to the Founder at a predetermined price, taking into account the past merits assessed by the partners (if for some reason each of the parties refuses to cooperate further);
adoption exclusively by the Founder of a number of fundamental issues in the Company (amendment of the charter, appointment of a director, approval of major transactions, etc.);
the obligation of the partner to join the transaction for the sale of all shares in the company, if the Founder receives a profitable, in his opinion, offer to sell the business;
providing the partner’s heirs with the opportunity to receive the actual value of his share in the Company, but without further participation in his authorized capital.
As a result of the “packaging of co-owner relations”, these agreements are reflected in the following documents and as follows:
Considering that the Founder of the business remained the majority shareholder, the size of his share allowed him to make most of the key decisions in the Company. These key decisions were attributed to the competence of the general meeting of members of the Company in accordance with its charter. With regard to decisions requiring, in accordance with the legislation, unanimous voting of the LLC participants, under the terms of the corporate agreement, the partner undertakes to vote as the Founder votes. Under the threat of substantial sanctions for violation of the agreed order. Separately, the procedure for convening and holding general meetings of members of the Society was worked out and consolidated so that this procedure reflects the real pace of business life and ensures the legality of decisions taken;
Since the partner was obliged to agree on the disposal of his share with the Founder, and the Founder and the partner were not obliged to do this in relation to his shares, this agreement was enshrined in the corporate agreement. The charter, as a rule, provides for the same “rules of the game” for all participants. And therefore, taking into account also the publicity of this document, such separate agreements must be recorded in an “intimate” corporate agreement (CA). Therefore: in order to alienate his share, the partner had to obtain the notarial consent of the Founder. The Founder could realize his share without any restrictions. The Charter directly stipulates the condition that certain nuances of the alienation of shares may be fixed by the Company’s participants in a corporate agreement between them. At the same time, information that there are restrictions on the disposal of shares stipulated by the CD in this case should be reflected in the Unified State Register of Legal Entities (subparagraphs L2, paragraph 1 of Article 5 of the Federal Law of August 8, 2001 No. 129-FZ “On State registration of legal entities and individual entrepreneurs “.);
In addition, the CA stipulated a mutual opportunity for the Parties to terminate their partnership: – For a partner: the right to demand the buyback of his share at a set price at his request. And the obligation to sell this share at the same price at the request of the Founder – For the Founder, respectively, the obligation to redeem the share at the request of the partner and the right to demand its sale.
The charter provided for the possibility of quarterly distribution of dividends within certain limits (not less, but not more than a certain percentage of the Company’s net profit), with the obligation of the parties to vote “FOR” such a decision fixed in the CA;
Additionally, the CA stipulates the partner’s obligation to join the transaction for the sale of all shares in the company to third parties if the Founder wants to conclude such a transaction;
As a result, a separate study was demanded by the issue of providing guarantees to the heirs of each of the parties.
The founder wanted to guarantee that his share could be passed on to his heirs without any restrictions. Accordingly, the charter of the company was supposed to ensure the unhindered inheritance of the share.
On the other hand, the Founder did not want to see the heirs of a partner among the participants.