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Shareholders Agreement

A shareholders’ agreement is a private contract freely entered into between shareholders governing their relationship and outlining how they will behave in relation to their company. It sets out how the company should be run, and rules and procedures relating to the holding and transferring of shares and other operational matters not otherwise governed by law. It may cover what matters require shareholders’ rather than only directors’ consent

Shareholders cannot be compelled to enter into the agreement but will do so voluntarily.  The agreement will then bind all parties, who may then be liable for breach of contract if they do not adhere to its terms.

Whilst some matters dealt with in a shareholder’s agreement may already be covered in the company’s Articles of Association, they can nonetheless be beneficial.

Shareholders can address matters that are personal to the shareholders, for example the right for a named individual to be appointed a director. By including this right in the agreement, it becomes contractually enforceable. The named director could seek damages or an injunction for breach of contract should the other shareholders refuse to appoint him.

 

 

 

Shareholders agreements can also protect minority shareholders. A shareholder’s voting rights is typically determined by their shareholding. If they own only 10% of the shares, they can represent only 10% of the voting rights in a company. The Companies Act 2006 stipulates that the most important or critical decisions of a company must be passed by Special Resolution, that is, with a 75% majority vote.  These decisions then could be given the go-ahead without the consent of the minority shareholder.  The shareholder agreement can amend this to stipulate that all shareholders must vote in support of a Special Resolution for it to pass, in other words, that a 100% majority vote is required. If the shareholders then pass a Special Resolution without obtaining this, they will again be liable for breach of contract.

Shareholders agreements can protect those shareholders, who may want to limit the powers of directors, if they themselves are not on the board or involved in the active management of the company.

Shareholders agreements can provide for what should happen in the event of a disagreement, and deal with pre-emption rights should one shareholder decide that they wish to sell. It can save vast amounts of money, time and stress should problems arise between shareholders in the future. The shareholders agreement will provide a mechanism, that you will not find in standard forms of Articles of Association, to resolve issues regarding disputes and the transfer of shares. Further unlike Articles of Association, the agreement does not need to be made publicly available on Companies House. It offers the shareholders complete confidentiality.

A shareholders’ agreement may include, but is not limited to:

  • Agreements not to compete with the company
  • Agreements to maintain confidentiality
  • Agreements regarding share capital structure, share dividends and share valuation
  • Agreements regarding further financing of the company
  • Provisions for resolutions of shareholder voting deadlocks
  • Provisions regarding the departure of a shareholder including ‘tag along’/ ‘drag along’ rights
  • Restrictions on borrowing and charges over company assets
  • Requirements for unanimous voting for major shareholder decisions

It is essential protection for the value of your business and your shares in the company.

We have dealt with numerous shareholders’ agreements and also shareholders’ disputes. Having experience of both enables us to give you the best advice.

David Cammack

Solicitor and Notary Public, Commercial Department, Colchester

 

“I have known David for many years now. He is highly reliable, professional and trustworthy. I would have no hesitation in recommending David and his services to any of my associates” 

Matters which could relate to shareholder agreements

Depending on your circumstances you may also need advice on matters such as:

If you would like to find out more information on shareholder agreements

Please complete our contact us form at the top of this page, email [email protected] or feel free to call us on 01206 577676.