Do you need a shareholders agreement?

What is a shareholders agreement?

 

A shareholders’ agreement is a legal document that outlines the rights, responsibilities, and obligations of the shareholders within a company. It is a private contract amongst the shareholders and is not required by law, but can detail how a company will be run.

This is unlike the company’s articles of association, which are a public document and a legal requirement for the formation of a company in England and Wales. But, do you need a shareholders agreement?

Outlined below are some key elements that a shareholders agreement can include:

Management and decision-making:

The agreement may specify the day to day running of the business, as well as how major decisions are to be made within the company. This could include shareholders voting procedures and the powers of each shareholder.

Share transfer restrictions:

Shareholders agreement often include provisions restricting the transfer of shares to third parties without the consent of other shareholders. This is to maintain control and ensure that existing shareholders have a say in who becomes a shareholder.

Pre-emption rights:

Pre-emption rights give existing shareholders the right of first refusal to purchase any shares if a shareholder wishes to sell. This ensures that the shares are first offered to existing owners before being sold to outsiders.

Dividend policy:

The agreement may outline the company’s approach to paying dividends and how they will be distributed among shareholders.

Rights and obligations of shareholders:

An agreement normally details the rights, responsibilities, and obligations of each shareholder. This may include issues such as non-compete clauses, confidentiality, and dispute resolution mechanisms.

Management and board composition:

An agreement can specify the composition of the board of directors, the appointment and removal of directors, and the powers and responsibilities of the board.

Exit strategies:

The agreement may include provisions for the sale of the company, including drag-along provisions and tag-along rights, which address the situation where one shareholder leaves or wants to sell their shares.

Dispute Resolution:

Procedures for resolving disputes among shareholders, which may include mediation, arbitration, or other agreed-upon methods.

Do you need a shareholders agreement?

 

Whilst it’s not a requirement under company law to have a shareholders’ agreement, having one is often considered advisable for several reasons.

Control and Decision-Making:

A shareholders’ agreement allows shareholders and directors of the company to define how major decisions will be made within the company. This aids in providing clarity on decision-making processes and preventing potential disputes.

Share Transfer Restrictions:

If you want to control the transfer of shares and have a say in who can become a invested in a company, a shareholders’ agreement can include provisions such as pre-emption rights or restrictive covenants on share transfers.

Conflict Resolution:

The agreement can establish mechanisms for resolving disputes among shareholders, potentially avoiding costly and time-consuming legal battles.

Management and Board Structure:

If you want to customise the composition of the board of directors, specify the roles and responsibilities of each shareholder, or outline the company’s management structure, a shareholders’ agreement is a suitable tool.

Minority shareholder protection:

A shareholders’ agreement can include provisions to protect the rights of minority shareholders, ensuring they have a voice in important matters. This can also minimise disputes between minority and majority shareholders.

Exit Strategies:

It can outline exit strategies for shareholders, addressing situations such as the sale of the company, right of first refusal, or drag-along and tag-along rights, especially in the context of a “bad leaver.”

Bad Leaver Clause:

A specific clause within the agreement may define what constitutes a “bad leaver” and the consequences for such shareholders, protecting the interests of the remaining shareholders.

Confidentiality and Non-Compete Clauses:

If there are sensitive business operations, a shareholders’ agreement can include clauses to maintain confidentiality and restrict competition by shareholders.

Dividend Policy:

If you want to establish a specific dividend policy, the agreement can detail how dividends will be distributed among shareholders.

Having a well-drafted shareholders’ agreement can help prevent misunderstandings, clarify expectations, and provide a framework for the smooth operation and success of the company.

It is advisable to seek legal advice when drafting a shareholders’ agreement to ensure it aligns with the legal requirements and specific circumstances of the company and its shareholders.

How can Expert Commercial Law assist?

 

If you are still asking the question “do you need a shareholders agreement?”, contact Expert Commercial Law today to speak to a solicitor on our panel.

All of the commercial contract solicitors on our panel have the commercially focused experience and expertise required to take on your case. Each solicitor is vetted before being allowed onto our panel, and we only select the best in the business. All of our solicitor firms are authorised and regulated by the Solicitors Regulation Authority (SRA).

Our commercial litigation lawyers also help with other commercial claims, such as director disputes and CCJ removal.

Please note we are not a law firm of solicitors; however, we maintain a panel of trusted and regulated legal experts. If you contact us in relation to a commercial law case, we will pass your case on to a panel firm in return for a fee from our panel firms. We will never charge you for passing on your case to a panel firm.

Schedule Your Free Consultation

Please note, we are not a firm of solicitors; however, we maintain a panel of trusted and regulated legal experts. If you contact us in relation to a commercial law case, we will pass your case onto a panel firm in return for a fee from our panel firms. We will never charge you for passing on your case to a panel firm. 

Consent

Contact us today
close slider