Brad Pitt and Angelina Jolie are currently engaged in a bitter legal battle over shares in their exclusive winery, which has become known as the ‘war of the rosé’.
The A-list pair set up a company to own and run Chateau Miraval, an exclusive winery in the south of France. This company then entered into a joint venture with a third party to develop and grow the business. Pitt claims he paid 70% of the total investment, but they each owned 50% of the company. The winery soon became a success, bringing in over $50m in revenue.
Jolie filed for divorce in 2016. Negotiations between them continued without success until 2021 when, Jolie allegedly completed a sale of her share to an aggressive third party competitor without Pitt’s knowledge. He alleges that this was contrary to a verbal understanding between them not to sell their shares without the other’s consent.
This case is outside the jurisdiction of England and Wales and is complicated by divorce proceedings. However, it serves as a reminder of the importance of protecting your rights as a shareholder, so that you avoid being forced to share your company with your competitor against your will.
Can a shareholder really sell their shares without the consent of the other?
Rules about selling to third parties are contained within a Company’s rule book – its ‘articles of association’. If your company did not draw up its own articles, the default set prescribed by law will apply, most recently known as the ‘model articles’. These are very basic and do not include any restrictions on when a shareholder can sell, or who they can sell to.
Prudent shareholders will ensure that their company prepares bespoke articles of association which are suited to the particular requirements of the company and shareholders. These could include ‘pre-emption rights’ on the transfer of shares. This would mean any shareholder who wants out, is obliged to offer their shares to the others first, usually in the same proportions that they already hold.
The effect of using articles of association to fix the ‘rules’ in advance, is that in some circumstances, certain actions can be rendered void, or result in forfeiture of shares if a shareholder breaks the rules.
Celebrities such as Pitt and Jolie may be dissuaded by the fact that articles of association are publicly available at Companies House. However, they could instead opt for a shareholders’ agreement. This is a private contract between shareholders, governing how they will behave towards each other. It has the benefit of being entirely private and safe from the prying eyes of the paparazzi.
How can a shareholders’ agreement help?
Brad Pitt claimed that there was a verbal agreement in place. Although in English law a verbal contract can be legally binding, it is often very difficult to prove what terms were agreed. Far better to put the agreement in writing. A shareholders’ agreement (amongst other things) allows you to confidentially set out in advance, what will happen if one shareholder wants out. If shares are to be offered to the other, the price can be agreed in advance, following an agreed valuation formula to calculate a price per share. Alternatively, shares could be valued by an independent expert, or automatically attract a premium for each year they are held. It might have helped Pitt to include such a mechanism which factored previous investment into the share price on exit.
What if both shareholders want to buy out the other? Known as a ‘Texas shoot out’, a shareholders’ agreement can be drafted to allow either party to serve notice on the other. The first to serve the notice could ‘win’ the right to buy out the other. Alternatively, a sealed bids process could apply, managed by an agreed third party. This would allow for the shareholder making the higher bid to buy the company at that price.
Unlike with articles of association, breaching the terms of a shareholders agreement cannot render an action void. However, it does allow an aggrieved shareholder to sue for damages or in some circumstances, to apply for an injunction to prevent the sale of shares outside of what was agreed.
However you choose to protect your interests, care must be taken to ensure that constitutional documents do not conflict, to avoid any uncertainty as to how either are interpreted in a future dispute. If you would like assistance with protecting your interests as a shareholder, get in touch with Bonnie Jackson and our Corporate team.