Top 6 FAQs about shareholders agreements - including a shareholders agreement example

1. What is a shareholders agreement?

A shareholders agreement (also known as a SHA) is a private agreement between the shareholders of a company and that company, that regulates how the company will be run and what the shareholders' rights are in relation to the company.

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2. Why does a company need a SHA?

A well-drafted SHA can be beneficial to both shareholders and the company itself. It provides a framework for a company’s relationship with its shareholders so that there are clear expectations from day one, avoiding potential disputes or misunderstandings in the future. A SHA can also be a key tool in attracting investors and raising further capital for a company.

Find out more about how a SHA can provide benefits to both shareholders and the company here (including a shareholders agreement example).

3. What types of clauses does a SHA include?

A SHA will typically include key clauses that set out ownership structure and shareholdings, decision-making processes, dispute resolution mechanisms, and the protection of shareholder rights. It will also include clauses that are there to protect the company, such as confidentiality obligations on shareholders and restrictions on shareholders if they exit the company.

Some SHA will also include additional clauses, such as clauses that deal with pre-emption rights on issue / transfer of shares, permitted transfers of shares, valuation of shares and tag along / drag along rights.

Find out more about the key clauses to include in a SHA here (including a shareholders agreement example).

4. How does a SHA affect the company’s articles of association?

Every limited company is required to have in place articles of association that must be publicly available on Companies House. Unlike articles of association, SHAs are private legal SHA to be published on Companies House (or made public via any other means).

A SHA and a company's articles of association are two separate documents that are used to govern the rights and responsibilities of shareholders in a company. However, both documents are related and can also affect each other in a number of ways. Articles of association set out the company's internal rules and regulations, including the company's purpose, share structure, and decision-making process of the board of directors and shareholders. On the other hand, a SHA sets out the rights and obligations of the shareholders in relation to the company.

There can be some overlap between the contents of a SHA and articles of association. Because of this, it is important to include a clause in a SHA that makes it clear that the terms of that agreement will take precedence over the articles, in the event there is any conflict. This clause is included in Docue’s shareholders' agreement example.

5. Can a SHA be amended or varied?

Yes - after a SHA has been entered into, there are two ways in which it can easily be changed (if required) using Docue's other corporate templates:

• Deed of adherence - as your company continues to grow, you may bring on board more shareholders in return for investment. A deed of adherence is a legal document that allows a new shareholder to become a party to an existing SHA. When a company already has a SHA in place, new shareholders may need to adhere to the existing agreement to ensure that all shareholders are subject to the same terms and conditions. A deed of adherence adds the new shareholder as a party to the existing SHA, and binds them to the same terms and conditions as the original parties. The new shareholder will be required to sign the deed of adherence as a formal agreement to adhere to the existing SHA. This mechanism avoids having to put a brand new SHA in place each time a new shareholder joins the company.

• Deed of variation - if you want to make other changes to a SHA after it has been entered into, you can do this by entering into a deed of variation to the SHA that sets out the changes being made. All parties to the original SHA must sign the deed of variation to show that they agree to the changes.

6. Is a SHA legally binding and how can a SHA be signed?

A SHA is a legally binding contract between a company and its shareholders.

Shareholders agreements are often executed as deeds, to ensure that they are binding on shareholders. A deed has specific signing requirements in order to be legally valid, and must be signed:

• By individuals, in the presence of a witness;

• By companies, by one director in the presence of a witness OR by two directors.

Docue’s shareholders agreement example can help you create a legally binding shareholders agreement in no time.

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