When starting or growing a company with multiple shareholders, it’s easy to forget the importance of ensuring good corporate governance and overlook the legal groundwork that best protects the Company and its shareholders. One of the most important—yet often neglected—documents in this process is the shareholders’ agreement.
What Is a Shareholders’ Agreement?
A shareholders’ agreement is a private contract between the shareholders of a Company that governs their relationship, rights and obligations. Unlike the company’s articles of association, which are public and filed at Companies House, a shareholders’ agreement is confidential and tailored to the specific needs of the shareholders. Unlike the Articles, simply being a shareholder in the Company does not mean you are a signatory to a shareholders’ agreement. Whereas by holding shares in the Company, you are automatically bound by the Articles.
Why Is It Needed?
Regardless of the best intentions of the parties, disputes can arise. A well-drafted shareholders’ agreement helps:
- Prevent misunderstandings by clearly setting out each party’s rights and responsibilities.
- Protect minority shareholders from being overridden by majority decisions. Minority shareholders do not have extensive rights at law to protect their interests, so a shareholders’ agreement can help bolster their position and ensure their views are taken into account.
- Provide mechanisms for dispute resolution, reducing the risk of costly litigation.
- Ensure business continuity in the event of death, incapacity, or exit of a shareholder.
- Safeguard the company’s future by controlling how shares can be sold or transferred.
Without one, shareholders are left to rely on the default provisions of the Companies Act 2006 and the articles of association, which may not reflect their intentions or protect their interests.
What Typically Goes Into a Shareholders’ Agreement?
While each agreement should be bespoke, common provisions include:
- Share ownership and rights: Who owns what, and what rights attach to those shares.
- Decision-making: What decisions require unanimous consent or a special majority?
- Dividend policy: How and when profits will be distributed.
- Transfer of shares: Pre-emption rights, drag-along and tag-along clauses.
- Exit strategies: What happens if a shareholder wants to leave or sell?
- Deadlock provisions: How to resolve disputes when shareholders are evenly split.
- Non-compete and confidentiality clauses: To protect the business from internal threats.
How we can help?
We can assist in drafting or updating a shareholder’s agreement. We are engaged in understanding the Company and the relationships between the parties so we can ensure that the drafting or updating of the agreement always has your requirements at its forefront. Some of the ways we can assist:
- Tailored advice: We ensure the agreement is aligned with your structure, sector, and shareholder dynamics.
- Risk mitigation: We can help in identifying potential areas of conflict and addressing them proactively.
- Clarity and enforceability: We ensure the language is clear, legally sound, and enforceable.
- Future-proofing: We are always anticipating changes in the business and can assist in building flexibility to support long-term growth.
A shareholders’ agreement isn’t just a legal formality—it’s a strategic tool that can protect relationships, preserve value, and provide peace of mind. Whether you’re launching a startup or restructuring an established company, investing in a well-drafted agreement will allow more time and effort to be spent on the Company, rather than the relationships and governance between the Shareholders.
Talk to our team
Ashton Carter in our Corporate & Commercial team at Fisher Jones Greenwood LLP, is here to guide you through every step of drafting a shareholders agreement. For further information or to discuss your specific situation, please do not hesitate to contact our team using our online contact form or call 08081 891 596.