Shareholders’ Agreement

A shareholders' agreement is a private agreement between the shareholders of a company. The main purpose of a shareholders' agreement is to regulate the relationship between the shareholders of a company and protect your business. Read more
Legislation United Kingdom United Kingdom
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The basics – avoid costly and damaging disputes with a shareholders’ agreement

Whether you’re founding a new company or you’re already 10 years deep, you need a corporate structure that will shield your company against risks as your business develops. Our dynamic shareholders’ agreement template can provide you with a crucial element of that corporate structure and help you to diligently steer your business towards achieving its mission.

Without a shareholders’ agreement in place disputes can be common, costly, and damaging for a company. Keep reading to find out exactly what a shareholders’ agreement can cover and the important benefits it can bring for your company.

A shareholders’ agreement is a private agreement to regulate the relationship between the shareholders of a company. If anyone obtains shares in the company in the future after the shareholders’ agreement has already been entered into, they will be required to sign a 'deed of adherence' and become a party to the shareholders’ agreement.

The complex bits (made simple!)

A shareholders’ agreement regulates the relationship between the shareholders of a company by setting out a list of matters that can't be implemented without the consent of a specified percentage of shareholders.

This means that the shareholders, even those who hold the majority of the shares, cannot do certain things without obtaining consent from the relevant percentage of shareholders. In other words, a shareholders’ agreement provides protection for the shareholders who hold a minority of the shares.

So, now you want to know what a shareholder’s agreement actually covers? No problem, below you can find the top 10 areas which a shareholders’ agreement usually covers:

  1. Dispute resolution measures to regulate disagreements within the company.
  2. The powers shareholders have regarding: Board meetings, director appointments and pay, and obligations for the Board to follow a business plan.
  3. The procedure which applies when a shareholder wishes to sell their shares to a third party outside of the company (e.g. do shareholders have the power to stop the transaction & are other shareholders entitled to purchase the shares rather than the third party).
  4. A process to govern events if the majority shareholders receive an offer to purchase their shares (e.g. whether or not the minority shareholders are obliged to sell their shares too).
  5. The consequences if an employee who has shares leaves the company (e.g. whether or not they have to give their shares back).
  6. Restrictions which prohibit previous shareholders from: being involved with a competing business, poaching staff, customers, or suppliers, or using the company’s confidential information.
  7. The mechanisms used to determine what happens to a shareholder’s shares if they die, become unwell or retire.
  8. Whether or not shareholders have the power to block significant decisions (such as altering the company direction or signing large-value deals).
  9. Reaching a solution if the direction of the company cannot be agreed (e.g. whether or not a shareholder can be forced to sell their shares or requested to purchase shares).
  10. Rules for payment of dividends (e.g. method(s) and recipient(s) of dividend payments).

Top 5 benefits of having a shareholders’ agreement:

  1. Enhance the company’s power to win investment – We all know investors will check your business is being operated diligently before they invest. If your company has a shareholders’ agreement in place this shows investors that your company is operated professionally with proper corporate structure, and that you safeguard shareholders. Investors may be more likely to invest if they see that a shareholders’ agreement is in place. It may put a tick in the box from the beginning, and set the right tone for the rest of the due diligence checks.

  2. Shield the company against fall-outs – Having a shareholders’ agreement in place can drastically decrease the chances of disputes within your company. Sometimes shareholders and directors disagree on the direction of the company – in this scenario a shareholders’ agreement often lays down clear and fair mechanisms to ensure the conflict can be resolved quickly, avoiding the need for costly legal action. Conflicts divert attention away from achieving the company’s mission, and so a shareholders’ agreement which can help mitigate such disputes is surely a no-brainer!

  3. Defend the shareholders – Without a shareholders’ agreement your shareholders benefit from significantly less safeguarding (i.e. the company’s articles of association and the law itself act as the shareholders’ only armour where there is no shareholders’ agreement). In contrast, a shareholders’ agreement can entitle shareholders to take part in company decision-making and obtain company information to ensure their interests are preserved.

  4. Create a collaborative approach – A well-managed process for putting a shareholders’ agreement in place can be a powerful tool for alignment. It can ensure all parties involved are singing from the same hymn sheet from the beginning. Handled correctly, a shareholders’ agreement can truly become a key part of the battle plan which everyone looks to for routine operational matters and long-term strategy and vision.

  5. Preserve the confidentiality of company affairs – There’s nothing worse than others sticking their nose into your business. Not to worry though, you can rest easy knowing that the provisions of a shareholders’ agreement are confidential. So you don’t have to file your shareholders’ agreement at Companies House or anywhere else. Among other things, this creates a privacy barrier between your competitors and the precious information that keeps your company one-step-ahead.

The action points – a shareholders' agreement template

Growing a company alongside loved ones, friends and colleagues is pure bliss when your business is booming and everyone is working well together. But relationships can quickly become problematic when times get tough or when strong personalities collide.

So for all those companies who don’t have a shareholders’ agreement in place, we strongly suggest you put it in the urgent section of your to-do list.

Check out our dynamic lawyer-drafted shareholders’ agreement template. Our smart template builder technology and built-in drafting guidelines will allow you to create a shareholders’ agreement bespoke to your business in a matter of clicks. Yes, it’s really that simple!

Legislation United Kingdom United Kingdom
Language en English

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