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Silent Shareholder Agreement

Silent Shareholder Agreement Template for England and Wales

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Key Requirements PROMPT example:

Silent Shareholder Agreement

"I need a Silent Shareholder Agreement for my tech startup where the investor will contribute £500,000 but remain completely passive, with quarterly profit distributions and an option to exit after March 2025."

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Document background
The Silent Shareholder Agreement is utilized when companies seek to raise capital without diluting operational control. This document, governed by English and Welsh law, establishes a framework for passive investment while protecting both the company's management autonomy and the investor's financial interests. It typically includes detailed provisions for profit-sharing, information rights, confidentiality obligations, and exit mechanisms. The agreement is particularly valuable for businesses that want to maintain their existing management structure while accessing additional capital, ensuring compliance with UK company law and financial regulations.
Suggested Sections

1. Parties: Identification of all parties involved, including the company, existing shareholders, and the silent shareholder

2. Background: Context of the agreement and the intention to create a silent shareholder arrangement

3. Definitions: Key terms used throughout the agreement

4. Investment Terms: Details of the silent shareholder's investment amount and form

5. Rights and Obligations: Specific rights of the silent shareholder and limitations on involvement

6. Profit Sharing: Terms for distribution of profits and losses

7. Confidentiality: Obligations regarding business information and the existence of the arrangement

8. Term and Termination: Duration of the agreement and circumstances for termination

Optional Sections

1. Tag-Along Rights: Rights to join in sale of shares by other shareholders - include when silent shareholder requests exit protection

2. Put Option: Right to sell shares back to the company - include when exit mechanisms for the silent shareholder are needed

3. Information Rights: Specific rights to receive company information - include when silent shareholder requires regular financial updates

4. Anti-dilution Protection: Protection against share value dilution - include when requested by sophisticated investors

Suggested Schedules

1. Schedule 1: Company Information: Details of the company structure and existing shareholders

2. Schedule 2: Investment Details: Specific terms of the investment including amount and payment schedule

3. Schedule 3: Profit Calculation Method: Detailed methodology for calculating profit share

4. Appendix A: Initial Business Plan: Current business plan and projections (if relevant)

5. Appendix B: Reporting Templates: Format for regular financial reports to silent shareholder

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents | Serial Founder & Legal AI Author

Linkedin in social icon imageX social icon image
alex.den.21@genieai.co
Relevant Industries
Relevant Teams
Relevant Roles
Industries

Companies Act 2006: Primary legislation governing company operations, including shareholder rights, company administration, director duties, and share capital regulations

Partnership Act 1890: Relevant legislation for understanding silent partnership characteristics and their relationship to limited partnerships

Financial Services and Markets Act 2000: Covers investment regulations and financial promotion rules applicable to shareholder agreements

Income Tax Act 2007: Tax legislation governing personal income tax implications for silent shareholders

Corporation Tax Act 2010: Tax legislation covering corporate tax implications and treatment of company profits

Finance Acts (Various): Multiple acts covering treatment of dividends and specific tax implications for silent shareholders

Common Law Principles: Legal principles established through case law covering contract formation, fiduciary duties, and confidentiality obligations

FCA Regulations: Financial Conduct Authority regulations applicable to arrangements involving regulated activities

Data Protection Act 2018: Legislation governing the handling and protection of personal information in business relationships

UK GDPR: Data protection regulations ensuring compliance with privacy and data handling requirements

Money Laundering Regulations 2017: Regulations specifying due diligence requirements and anti-money laundering compliance

Teams

Employer, Employee, Start Date, Job Title, Department, Location, Probationary Period, Notice Period, Salary, Overtime, Vacation Pay, Statutory Holidays, Benefits, Bonus, Expenses, Working Hours, Rest Breaks,  Leaves of Absence, Confidentiality, Intellectual Property, Non-Solicitation, Non-Competition, Code of Conduct, Termination,  Severance Pay, Governing Law, Entire Agreemen

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