10 April 2019

If you are going into business with others and are looking for confidence about your future relationships with them, you should consider putting a shareholders’ agreement in place to protect both the business enterprise and your own investment in the company

A shareholders’ agreement is a private agreement between the shareholders of a company. Its purpose is to protect the shareholders’ investment in the company, to establish a fair relationship between the shareholders and govern how the company is run.

Without a shareholders’ agreement in place, you will be reliant on the provisions of company law, which will often contradict the way in which you intend on running your company. Under company law, a director acting on his own would be able to carry out matters, without the consent of the other directors. The shareholders agreement can override the provisions of company law and you can therefore dictate how you want to run and manage your company between all of the shareholders.

The agreement will usually:

  • detail the shareholders’ rights and obligations;
  • regulate the sale/transfer of shares in the company;
  • provide an element of protection for minority shareholders and the company; and
  • set out how important decisions are to be made.

The key provisions which should be included within a shareholders agreement are those relating to:

  • The issue and transfer of shares – including provisions to prevent unwanted third parties acquiring shares, what happens to shares on the death of a shareholder and how a shareholder can sell or transfer shares.
  • Providing some protection to holders of less than 50% of the shares – including requiring certain key decisions to be agreed by all shareholders.
  • Payment of dividends.
  • Running the company – including appointing, removing and reumerating directors, frequency of board meetings, deciding on the company’s business, making large expenditure, providing management information to shareholders, banking and finance arrangements of the company.
  • Competition restrictions.
  • Intellectual property.

For further information and advice please contact;

Shahin Akhtar on 01254 297130