What is a shareholders’ agreement?
A shareholders’ agreement is a private written agreement between all or some of a company’s shareholders helping to define their roles and how they will reach certain decisions. The Shareholders’ agreement is a contract between the members and does not need to be disclosed with Company’s House. Any use of a shareholders’ agreement should be considered in line with the Company’s Articles of Association.
When you hold shares in a company (a shareholder), you do not have the day to day control of running the company unless you are also a Director. Depending on the type and percentage of shares you hold, you may also have certain statutory rights (primarily from the Companies Act 2006) that protect shareholders from certain actions by the Directors.
When things go wrong – what happens if you don’t have a shareholder’s agreement?
Without a shareholders’ agreement, in the event of a dispute or a breakdown in trust between the shareholders, there will be no agreement in place on how to resolve the dispute or agree a way to terminate the relationship of the shareholders (other than the statutory provisions and the terms set out in the articles of association).
If all shareholders approach the problem in a fair and reasonable way then a solution may be documented and all parties may be able to move forward happily. Where shareholders have fallen out and are no longer on talking terms however, negotiations to agree a separation can prove stressful, time consuming and expensive.
In addition, disputes about rights over the company’s assets, repayment of loans and share prices are more difficult to resolve, particularly in smaller companies where the directors and shareholders work full time in the business and shares are held on an equal footing. This situation is known as deadlock and without a mechanism to decide on a deadlock, the parties’ may need to consider winding up the Company.
What is the benefit of a shareholder’s agreement?
The main benefit of a shareholders’ agreement is that the shareholders have agreed and documented their intentions on how they will work together as shareholders of the Company. The agreement can document key decisions of the company such as how shares can be sold, what happens if a shareholder dies, whether shareholders can work in competition with the company when they leave and whether any compulsory share transfers should take place if a shareholder has acted in contravention of the agreement.
For an initial discussion with experienced commercial lawyers in Bristol or to discuss a company’s shareholders agreement, contact solicitor Grant McCall, on 0117 973 39 89 or email email@example.com.