What is a Shareholders’ Agreement?
A Shareholders’ Agreement is an agreement which governs the relationship between some or all of the shareholders of a company. Shareholders’ Agreements are generally private documents, unlike a Company’s Articles of Association, which are available for public inspection at Companies House.
Do I need a Shareholders’ Agreement?
The primary purpose of a Shareholders’ Agreement is to provide protection for the shareholders of a company. It is therefore advisable for any company with two or more shareholders to consider putting a Shareholders’ Agreement in place.
The key advantages and disadvantages of having a Shareholders’ Agreement are set out be:
What are the types of issues which can be addressed in a Shareholders’ Agreement?
Shareholders’ Agreements are very flexible and should be tailored to meet the needs of a company and its shareholders. The following points give an indication of the types of issues which may be addressed by a Shareholders’ Agreement:
- Transfers of shares: it is important to consider whether controls should be put in place around the transfer of shares. Most commonly, this involves introducing pre-emption rights, whereby shares must first be offered to the other shareholders before they are sold to a third party.
- Shareholder death: again, consideration should be given as to what should happen if one of the shareholders dies. In such a scenario, the surviving shareholders may wish to have the option to purchase the deceased shareholder’s shares, rather than finding themselves in business with the family members of the deceased.
- Decision-making: matters requiring shareholder approval may be set out in a Shareholders’ Agreement.
- Deadlock/conflict: a Shareholders’ Agreement can set out deadlock provisions setting out the procedure for the resolution of any conflict between shareholders. This can be particularly important where a company’s shares are held 50:50 between two shareholders.
- Dividend policy: some shareholders choose to include a dividend policy in a Shareholders’ Agreement in order to avoid future conflicts with regard to the payment of dividends.
Shareholders’ Agreements can therefore offer a number of protections for a company’s shareholders and set out a framework for the running of a business. Taking the time to put a Shareholders’ Agreement in place can be very worthwhile and certainly merits careful consideration.