Shareholder Covenant
Discussion
Wonder if I could get the view of the PH hive mind.
I was a Director in a business that was sold, Spring 2023. As part of that exit I signed a Minority Shareholder Agreement which concludes late spring 2024. This business worked in trade media communication for the sciences.
I have since started a new business operating in a different sector and offering a service my former employer does not offer. It's going well. I do however crave the services or a former colleague who would be a wonderful addition to the new business.
The contract is extremely clear, I can't offer employment to said person as they would fall into the below clauses.
My question: Considering the new business is in a comprehensively different sector how could they peruse this matter? I was of the understanding they have to prove financial loss to their business and I am not sure how they would do that when the new entity is an ocean away in terms of the customer base.
I have no interest in being perused on the matter, just exploring the topic and would value any thoughts.
I was a Director in a business that was sold, Spring 2023. As part of that exit I signed a Minority Shareholder Agreement which concludes late spring 2024. This business worked in trade media communication for the sciences.
I have since started a new business operating in a different sector and offering a service my former employer does not offer. It's going well. I do however crave the services or a former colleague who would be a wonderful addition to the new business.
The contract is extremely clear, I can't offer employment to said person as they would fall into the below clauses.
My question: Considering the new business is in a comprehensively different sector how could they peruse this matter? I was of the understanding they have to prove financial loss to their business and I am not sure how they would do that when the new entity is an ocean away in terms of the customer base.
I have no interest in being perused on the matter, just exploring the topic and would value any thoughts.
Edited by Lotus82 on Wednesday 23 October 12:37
24 months is a short agreement.
Late spring 2025 is not a long time left to wait before the agreement expires.
Part of the value you got on exist was because of the stability that agreements like this provide.
There will be some who will find ways to justify not complying with the agreement.
Were it me, I’d rather be seen as a chap who sticks to what been agreed and wait a short while longer. Much better than potentially perceived as someone who will try to weasel out of a deal later.
The only other option would be to negotiate an exit for the other chap, but that’s often fraught with difficulties.
Late spring 2025 is not a long time left to wait before the agreement expires.
Part of the value you got on exist was because of the stability that agreements like this provide.
There will be some who will find ways to justify not complying with the agreement.
Were it me, I’d rather be seen as a chap who sticks to what been agreed and wait a short while longer. Much better than potentially perceived as someone who will try to weasel out of a deal later.
The only other option would be to negotiate an exit for the other chap, but that’s often fraught with difficulties.
Whilst the covenant does not explicitly exclude non-competing sectors, it doesn't include them either. It would be on this point a lawyer would argue the point. But adjudication would likely consider that regardless of anything else you have broken the terms of agreement.
I agree with LooneyTunes on the timing. If you started the recruitment process tomorrow, you could be looking at five to six months before someone starts so for the sake of a couple of more months, I'd hang on until you're contractually clear.
I agree with LooneyTunes on the timing. If you started the recruitment process tomorrow, you could be looking at five to six months before someone starts so for the sake of a couple of more months, I'd hang on until you're contractually clear.
Thank you for the replies.
TownIdiot, relationship with new owners is good and they're supportive of my new business as long as it remains outside their commercial purview. What they would not be happy with is the removal of a member of staff by me while I remain in the terms of the covenant, which is the curx of the matter.
From these responses you have all supported what I already thought, sit on my hands and wait the last few months.
Thanks again.
TownIdiot, relationship with new owners is good and they're supportive of my new business as long as it remains outside their commercial purview. What they would not be happy with is the removal of a member of staff by me while I remain in the terms of the covenant, which is the curx of the matter.
From these responses you have all supported what I already thought, sit on my hands and wait the last few months.
Thanks again.
Lotus82 said:
My question: Considering the new business is in a comprehensively different sector how could they peruse this matter? I was of the understanding they have to prove financial loss to their business and I am not sure how they would do that when the new entity is an ocean away in terms of the customer base.
I have no interest in being perused on the matter, just exploring the topic and would value any thoughts.
I don't think that the fact you are not competing against them is the issue. The buyer is reliant on the knowledge and skills of key members of staff and doesn't want them being enticed away by former colleagues for a period after acquisition.I have no interest in being perused on the matter, just exploring the topic and would value any thoughts.
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