Shareholders' Agreement

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 an agreement in place between shareholders disputes can be common, costly, and damaging for a company. This 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 agreement has already been entered into, they will be required to sign a 'deed of adherence' and become a party to the agreement - our template deed of adherence of companies can be found here and the one for individuals can be found here.

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, the shareholders' agreement provides protection for the shareholders who hold a minority of the shares.

So, what does this shareholders' agreement actually cover?

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).
11. Optional clauses for drag-along and tag-along rights.

Find out more about shareholders agreements here.

Top 5 benefits of using Docue's template shareholders' agreement

1. Enhance the company’s power to win investment: Investors will check your business is being operated diligently before they invest. If your company has an agreement in place between shareholders 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 an agreement in place between shareholders 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.

3. Defend the shareholders: Without a written 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, using this shareholders' agreement template 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 using this shareholders' agreement template 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, an agreement between shareholders 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: The provisions in the shareholders' agreement template are confidential, so you don’t have to file it 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

Check out our dynamic lawyer-drafted shareholders’ agreement. Our smart template builder technology and built-in lawyer-written drafting guidelines will allow you to create a shareholders’ agreement bespoke to your business in a matter of clicks.

Read our blog to find out more

Find out more about shareholders agreements via our handy guide.

Why Docue?

Full contract process: Once you have created a contract that is tailored to your business using the shareholders' agreement template, you can send the contract to the other parties for e-signing. In addition to collecting signatures electronically, you can store the agreement in Docue’s storage vault, Docue Drive, to ensure you always have quick and easy access to your contracts and other legal documents in one place.