Shareholders Agreement

What is a Shareholders Agreement?

If your business structure is a company limited by shares, you should consider getting a shareholders agreement. A shareholders agreement outlines the rights and obligations of each party and ensures everyone is treated fairly. Agreeing the rights and responsibilities of the shareholders and the management of the business means everyone knows exactly where they stand.

If you are in a partnership or limited liability partnership a similar agreement called a partnership agreement can be drafted.

What should a shareholders agreement include?

Our corporate and commercial solicitors are experienced in drafting shareholder agreements for businesses of all sizes and sectors. They will draft an agreement tailored to your needs, which will detail how the business is managed and what happens if a party exits the business.

Typically, the agreement will include:

Why is a shareholders agreement important?

Creating a shareholders agreement when everyone is on good terms ensures that constructive discussions take place and that a balanced outcome, one that is good for both the business and shareholders, is achieved.

A carefully considered agreement put in place from the outset can minimise, and sometimes prevent, time consuming and costly disputes. The agreement will address how challenges you or your business face may affect your business in the future and highlight areas where shareholder expectations are not aligned.

A shareholders agreement serves as a ‘rulebook’ if and when challenges arise. It provides clarity on how to resolve a dispute in a fair and reasonable way. This often prevents friction and breakdown of the relationship that may threaten the success and longevity of the company.

What happens if there is no agreement?

If there is no shareholders agreement, shareholders rights are only documented in the company’s articles and are dealt with in accordance with the Companies Act. Unlike the company’s articles, a shareholders agreement is a private agreement which is governed by contract law. The benefit of this is that arrangements tailored to your business can be legally formalised.

If there is no formal agreement it opens up the potential for disputes and disagreements between shareholders. If there is no agreement, there are no agreed obligations in place which could lead to further disputes and disagreement. A shareholders agreement contains provisions that pre-empt disagreements or disruptions and set out appropriate ways for issues to be addressed.

It can also lead to difficulties if one of the shareholders wants to leave the company and sell their shares as there is no set process documented to adhere to.

Can you change a shareholders agreement?

Yes, you can change a shareholders agreement. You may need to if your business changes and your existing agreement is no longer suitable: for example, if a majority shareholder exits the business. A carefully drafted shareholders agreement will set out a process for amendments. Typically, a change to your company’s shareholders agreement will require all of the shareholders to agree to the change in writing.

How can we help?

Our Corporate & Commercial Team have extensive experience in drafting and advising on a wide range of shareholder agreements. We work with businesses of all sizes, providing peace of mind for the parties involved. If you would like one of our corporate and commercial specialists to help you draw up, review or provide advice on the contents of an existing shareholders agreement please contact one of our team members below.

Our Corporate & Commercial Team

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Newbury Thatcham Maidenhead
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