A shareholder agreement is a private arrangement between shareholders of a company. Although you may never need to rely upon its terms, it is useful for those entering into business with others. Not only does an agreement give all signatories to it confidence that their investment and the wider business will be protected, it is also a vital document when it comes to dispute resolution.
Arguably, shareholder agreements are necessary for all businesses because every company operates under the same rules no matter what their size. But having a shareholder agreement is purely one of choice; it is not a legal requirement.
Shareholder agreements can be between all shareholders or a selected number. This helps safeguard investments and balances the relationships between the shareholders. Shareholder agreements typically outline:
Agreements can be designed to suit investor and shareholder requirements to protect everyone’s interests.
Shareholder agreements typically set out the process that shareholders must follow in the event that disputes arise. This can save time and reduce frustrations, and lead to way to a clear resolution.
Shareholder agreements can determine whether or not to make the business’s information publicly available. It can also show individual shareholders’ claim to view specific company documentation. This can include things such as accounts, minutes of meetings, and a variety of other papers.
Shareholder agreements can be a great way to protect minority shareholders and give them a ‘voice’ within the company on issues they would not have otherwise had much influence. This could be on distribution of profits or spending, for example.
If they invest in the company and do not wish to become involved in the day-to-day running, it may be wise to include safeguards within the shareholder agreement to ensure their interests and investments are protected.
If trying to raise capital, a shareholder agreement can show a bank and any creditors that the business is stable. It also serves to outline the business’s roadmap if it is ever put on the market for sale.
If shareholders have differing percentages of shares, it is important to outline how varied dividends will be paid to shareholders at an agreed rate. This tends to be a particularly contentious issue and can resolve future frustrations and disputes, particularly if the business goes through a time of reduced profit.
This term in a shareholder agreement restricts the decisions of company directors and ensures the management of the business is protected for shareholders. Regulating company management in this way helps shareholders protect their interests by adding the requirement of consent for specific decisions from the board.
There are multiple reasons and situations where transference of shares may be required. For example, if a shareholder dies. To make sure the transference takes place in the best interest of the company and other shareholders, it is essential to include this term within a shareholders agreement.
Shareholder agreements can be varied and amended. So if a new shareholder joins, for example, a new agreement doesn’t have to be drafted. A deed of adherence is simply added to the shareholder agreement. This can save a huge amount of time for everyone and means the business can continue without disruption.
A shareholders agreement can be created at any time; it does not have to be done at the inception of a business. All that is required is a couple of meetings with a solicitor to discuss the company’s requirements. The agreement can then be drafted. The advantage of preparing a shareholder agreement at the start of trading is that it can highlight issues or areas where shareholders have differing expectations, which can then be resolved at the outset. The issue with delaying implementation of a shareholder agreement is that whilst everyone can usually agree a fair solution before circumstances change, they rarely can afterwards.
It is also sensible to review the shareholders agreement periodically to ensure it still functions in the way the shareholders and company principals designed it to.
To ensure your business is protected before a dispute arises, it is always recommended to have a shareholder agreement in place. For more information, please contact us on 0330 107 0106.
This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.
Talk to us today 
0330 107 0106
CONTACT US TODAY