The Importance of a Shareholders Agreement

Commercial & Corporate | 6th April 2017

The importance of a shareholders agreement should never be underestimated. Unlike a company’s articles of association which is a matter of public record, a shareholders agreement remains a confidential agreement between the shareholders of the company.

A shareholders agreement sets out the rules upon which the directors and shareholders carry on the business of the company and can include procedures on how decisions are made.

One of the reasons many companies do not have a shareholders agreement in place is the potential cost. However, given the breadth of areas that a shareholders agreement can cover, this cost is often quickly outweighed if a dispute is avoided or a procedure easily followed.

Shareholders agreement should be considered by all limited companies from 2 shareholder SMEs to a multi-shareholder multi million pound turnover company. The flexibility of a tailored agreement can be used to:

  • Set out a list of reserved matters, which gives shareholders control over certain fundamental decisions that affect the Company. This can also assist in protecting minority shareholders;
  • Clarify the dividend policy of the Company;
  • Set out a dispute resolution procedure to minimise costs and prevent lengthy court cases as far as possible;
  • Control how shares are transferred, this can also cover off transfer provisions in the event of death, critical illness, bankruptcy, divorce or separation;
  • Confirming the position in the event that an offer is made to purchase the shares or assets of the Company; or
  • Place restrictions on shareholders with a view to preventing them competing with the company in the event that they transfer their shares.

If the time is right for a shareholders agreement, or a review of your company’s current shareholder arrangements, please contact Danielle Collett-Bruce on 01483 887653 or via email at dcb@hartbrown.co.uk.

 

This is not legal advice; it is intended to provide information of general interest about current legal issues.

Danielle Collett-Bruce

Danielle Collett-Bruce

Solicitor, Commercial & Corporate

Danielle’s focus is split equally between company, commercial and corporate law. She advises on new business ventures, shareholder and partnership...

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