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Shareholder Agreements

Shareholder Agreements

A shareholder agreement allows you to regulate how the company is run without having to publicly declare these rules in the Articles of Association. It can be used to impose restrictions on shareholder activities both during and after sale of any shares.

There are many reasons to use a shareholder agreement, such as:

  • Setting out the rights of shareholders
  • Managing the compulsory transfer of shares
  • Stopping shareholders from blocking the sale of the business
  • Bolstering the power of minority shareholders
  • Controlling dilution

Another main reason to use a shareholder agreement is to avoid conflict between shareholders and directors and even between shareholders themselves. A shareholder agreement can offer clarity and direction by setting out the framework on how the company is governed, operated, and what happened in the event of deadlock or an obstructive shareholder.

Whether a shareholder agreement is for you depends on many circumstances, but if one of these applies, then you should seriously consider one:

  • A business with two or more shareholders
  • Setting up a new company
  • Buying a business with others in a new company
  • Acquiring shares in an existing company
  • Selling shares in your own company to others, but keeping your own shareholding

Monarch Solicitors can help you draft a shareholder agreement that not only covers all the relevant points, but also complements the Articles of Association. We can cover:

  • The nature of the business
  • Decision making
  • Rights and obligations of shareholders
  • Transfer of shares and pre-emption rights
  • Appointment and removal of directors
  • Roles and responsibilities
  • Dispute resolution
  • Minority shareholder protections
  • Dividends
  • Non-competition
  • Remedies for breach of the shareholders agreement
  • Indemnity and apportionment of liability

Our specialist litigation team can assist you if a dispute has arisen, whether there is or is not a shareholder’s agreement in place.

Contact our Corporate Solicitors:

If you would like to enquire for any matters regarding shareholder agreements please complete our online contact form here or send an email to us at [email protected] and one of our solicitors shall call you back.

Alternatively, please call our corporate solicitors on 0330 127 8888 for a no obligation discussion.

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FAQ

Most frequent questions and answers

Where you and your fellow shareholder own 50% each in a company it is important to have a dispute resolution provision included as you may fall out. Without an agreed procedure to resolve disputes no decisions can be made leaving the company unable to operate.

Without a shareholders’ agreement, a minority shareholder (one owning less than 50% of the shares) will generally on their own have little control or say in the running of the company. Companies are generally run by majority decision and even if the articles of association include provisions that protect the minority these can be changed via special resolution by holders of 75% of the voting shares.  There are laws that provide limited protection to minority shareholders, but these can be costly to enforce and may not achieve the required redress.

Being a minority shareholder and having a shareholders’ agreement that includes the requirement for all shareholders to approve certain decisions ensures that you have a say in the important decisions that impact the company.  This could be decisions on:

  • the issue of new shares;
  • appointment or removal of directors;
  • taking on new borrowings; or
  • changing the main trade.

However, if all decisions have to be unanimous this could cause problems and ultimately prevent your company carrying out its business.

Usually, it is best to put a shareholders’ agreement in place when the company is formed and issue the first shares. In fact, it can be a positive exercise to ensure there is common understanding of shareholders’ expectations of the business. At that point, the shareholders should, as far as is possible, be of a similar mind about what they expect to offer and get from the company.

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