subject: A Shareholders' Agreement - Why You Need One [print this page] If you share ownership of a Company with others it is always useful and in many cases essential that you protect your position with a Shareholder Agreement.
What is a Shareholders' Agreement?
A Shareholders' Agreement is a written contract that exists in private between the Shareholders of a Company. It is not the same as the Articles of Association of a Company and it is not necessary to file the Agreement at Companies House, meaning that it cannot be read by anyone else.
A Shareholders' Agreement - what can it do?
By creating a Shareholders' Agreement you give yourself a significant level of control over the company in a number of ways including:
- Deciding how a new shareholder can join the company.
- Regulating the procedure for all shareholders so that their rights are protected and their responsibilities in the Company are specified.
- Specifying how people can buy and sell shares, who can buy and sell them and when they can be traded. This might include those instances when a shareholder is reluctant to sell.
- Identifying the procedure for the issuing of new shares by the Company.
- Deciding how the value of your shareholding is calculated if the business is to be sold, and how any disagreements over the value are to be resolved.
- Identifying those decisions made in the running of the Company that can only be taken if all the Shareholders agree.
- Identifying the powers of non-owner Company Directors, and specifying how these powers can be used for the advantage of the Company and its shareholders.
- Specifying what will happen if a shareholder becomes unwell and is thus unable to play a role in an owner-managed business.
- Specifying how company decisions can be made easily and with minimum administration whilst at the same time making sure the shareholders remain aware of these decisions.
- Laying out a process that will resolve a deadlock caused by lack of agreement on a decision needed to keep the company running. Such a deadlock could seriously affect the business and perhaps even cause it to go under. Having a procedure in place in advance of this situation can help the deadlock to be broken, and allow the Company to move forward.
Do I need a Shareholders' Agreement now or later?
If you start a business with others and purchase an "off the shelf" company you may think a Shareholders' Agreement is an unnecessary luxury that can wait until profits appear. A decision delayed can often be neglected for ever and the benefits of such an agreement are then unavailable at the very moment it is needed: when owners fall out or want to sell.
You can create a Shareholders' Agreement at any time during the life of the Company. You can review it as your needs and those of the business change and can amend it by agreement. You can even make it exist for a fixed period of time, e.g. three years, before it has to be renegotiated.
If you think that your Company needs a Shareholders' Agreement or if you already have an Agreement that you would like to review, get in touch with a skilled business law solicitor to discuss your needs and requirements.
