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Shareholder Agreement - Short

This agreement is made between the shareholders of the company and its directors to stipulate and clarify key issues in the running of the company and its relationship to, and the rights of its, shareholders above the legal requirements of the Companies Act 1985. It is a confidential internal company document and not available for public inspection. It complements the Memorandum and Articles of Association and covers only the shareholders who have signed up to it.

The directors and shareholders agree that without the written permission of shareholders representing 75% of the ordinary equity of the company, or as specifically stated otherwise in this agreement, the directors and shareholders will:

The Directors shall not:

Open any new bank accounts

Enter any new loan agreements

Deviate materially from the business plan or enter any new area of business

Transfer, lease, assign, grant any license over any company property other than the sale of current assets in the normal course of trading

Establish any subsidiary

Authorise any increase in the authorised share capital of the company

Agree the sale or takeover of the business

Authorise any share option schemes or revise director emoluments

The directors shall:

Hold a monthly board meeting, with a maximum of 50 days between meetings, and a minimum of 10 board meetings per calendar year.

At each board meeting, the time, date and place for the next meeting shall be agreed and each director and investor representative shall be notified at least 14 days prior to it.

Circulate an agenda a week in advance of the meeting, including minutes from the last board meeting for approval. The agenda will include a review of trading activities and financial status, as well as any other material issues that are proposed for inclusion by directors and / or shareholders representing 5% of issued shares. Proposed agenda items should be proposed to the chairman at least 14 days prior to the meeting.

Present a brief monthly management report, including a set of management accounts, covering progress in relation to plan, prospects for the business, and highlighting any key or material issues faced by the company.

Banking Arrangements / Transfer of Funds

The Company shall have 2 authorised signatories to all bank accounts, who must be directors, and shall be registered by the directors with the company’s banks.

In the normal running of the business one ‘cheque book’ / register of payments shall be used and kept by the Financial Director who will usually make routine payments.

Any cheques or transfers in excess of £1,000 shall be required to be signed / authorised by two signatories, and any over £5,000 must additionally be approved by the board.

Share Issues and Sale of Shares by the company or shareholders:

Transfer of shares from an existing shareholder. Any transfer, other than within family members, or as a result of bereavement, or as a gift, must be approved by the board under the 75% rule. Such consent shall not be unreasonably withheld.

Any sale of shares must be approved, such consent will not be reasonably withheld, and existing shareholders shall have first refusal to purchase the shares under the same terms. Any issue / sale of shares by the company shall be offered to the existing shareholders under the same terms and they will have a pre-emption right to purchase such shares.

In the event of shareholder incapacity, or worse

The shareholder shall nominate a representative, or nominate a member of the board, or the chairman, to vote on matters relating to the company on his / her behalf in the vent of their incapacity until he/she issues written instructions to the contrary or legal clarity is established between his estate and its benefactors. In the event of no such representative being available, then a spouse, or next of kin, shall be asked to act. They shall have the right to attend board meetings. This representative shall not be held liable by any party to this agreement, or any party acting in behalf of the shareholders benefactors, for any consequences of their decision-making.

The board and all shareholders will accept the representative’s authority to vote on any matters of company policy.

The normal management of the company shall continue to under the remaining board based on normal board decision-making process. The directors shall be reasonable and consider the interests of the absent shareholder and act in good faith. They shall not be liable if decisions made were not to the maximum benefit of the absent shareholder.

Removal of Directors

In addition to the provisions under the Articles of Association, a director may be removed from the office of director if:

other directors or major shareholders propose his / her removal in writing, this shall immediately be put to a vote and confirmed by a simple majority of over 50%.

OR by the unanimous decision of the other board members providing there are at least four members on the board.

Under such circumstances the severance rights in the directors service contract shall apply, as will their rights as shareholders under this agreement.

Minority Protection

To change the following rights shall require a unanimous vote by all shareholders holding 5% or more of the issued equity of the company who are party to this agreement, and a majority of at least at least 75% of the voting equity of the company.

Right to appoint a Non Executive Director or Investor Representative

Any investor, holding 5% or more of the company’s issued shareholder capital shall have the right to appoint a non-executive director to the board, or to have a non-voting representative present at board meetings. The Board of Directors, acting unanimously, shall have the right to veto the appointment of any individual.

Dividend Policy

It is not expected that the company will make a dividend for the next three years. After that any shareholder, or shareholders acting as one through written authority, representing at least 5% of the ordinary voting equity of the company shall have the right to insist that at least 10% of profits available for distribution (within the definitions of the Companies Act 1985) in the accounting period, are distributed by way of cash dividends within 6 months of the end of that accounting period – providing it is lawful to do so.

Shareholder and director confidentially obligations.

To keep all matters relating to the company confidential except where disclosure is required by law, or as part of the process of seeking personal advice on the investment from professional advisers, whom the shareholder warrants will ensure confidentiality.

We agree to be bound by this agreement:

Witnessed by the Company Secretary:

An original copy should be given to every shareholder / director party to this agreement, plus one kept by the company secretary or the company’s lawyers in the company file.