Shareholders Agreement

Shareholders’ Agreement

If you own a company along with others, it is advisable (and in some cases essential) that you protect your position with a Shareholders’ Agreement

The law doesn’t offer a solution for every potential issue or conflict that arises between shareholders, which is why it is so important to put a Shareholders’ Agreement in place at the earliest opportunity. Then, if there is a dispute or uncertainty on how to proceed in a particular situation, you can look to the Shareholders’ Agreement for guidance.

The more common type of sale tends to be share sales by private limited companies.

What is a Shareholders’ Agreement?

A Shareholders’ Agreement is a written contract between the shareholders of a company that is intended to regulate the relationship between them, and set out the way in which the company is to be run.

Unlike a company’s Articles of Association, the Shareholders’ Agreement does not need to be filed at Companies House and does not, therefore, have to be made available for public inspection. 

Why use a Shareholders’ Agreement?

Shareholders’ Agreements can help the owners of a company take control over the way in which it is run. Most importantly, they can help provide certainty and consistency within the business by setting out a clear framework of rules, responsibilities and procedures.

Setting out the position before issues or disputes arise can save significant time, money and frustration further down the line.

What areas can be covered in a Shareholders’ Agreement?

The provisions of a Shareholders’ Agreement vary depending on the type of company involved, and its particular needs, aims and objectives. Issues typically covered include:

• Roles and responsibilities
• Who has control  
• The rights of individual shareholders to receive profits and/ or dividends
• The identification of decisions which can only be taken if all shareholders agree
• The frequency at which board meetings are required to take place
• How a new shareholder is able to become a part of the company
• Agreed procedures and methods of taking decisions
• Restrictive covenants for existing shareholders
• Dispute resolution procedures
• Measures to protect the interests of minority shareholders
• The correct process for the buying and selling of shares
• The process by which new shares may be issued
• The extent of the powers of any non- shareholding company directors
• The procedure to follow and the steps to be taken where no decision can be reached on a particular matter
• Arrangements in connection with an outgoing shareholder
• Sale of the business