Shareholder Agreements Solicitors

What is a shareholder agreement?

A shareholders agreement helps to regulate shareholders relationships with each other and the company directors.

It also;

1. Provides clarity on how shareholders manage and operate the company, and
2. Mitigates against costly shareholder disputes, should they arise in the future

At Rothera Bray, we can draft or review your shareholders agreement to make sure they serve your business.

Call us on 03456 465 465.

When should you enter into a shareholders agreement?

You should consider entering into a shareholders agreement if:

• You are setting up a new business with other people
• Your current business has two or more shareholders
• You are buying a business with other people
• You’re acquiring shares in an existing business
• You are transferring or selling shares to others, while retaining a shareholding yourself

You can still enter into a shareholders agreement if you have an existing business. Doing so will protect all shareholders.

It’s also important to review these agreements on a regular basis to keep them up to date. This is especially important when shareholders aren’t equal.

Why your company should have a shareholders agreement

The Companies Act 2006 does provide some protection for shareholders. That said, it’s very limited.

A shareholders agreements isn’t a legal requirement. However,  there are some very good reasons for having one;

Regulating the management of the company

The board of directors usually make decisions on how a company should run and operate. That said, shareholders might take the view that some decisions should need shareholder approval. Especially in situations where directors are not shareholders.

Regulating shareholder disputes

When entering into a new business relationship, it might be difficult to see a scenario where;

1. Shareholders can’t agree, or even worse,
2. Fall out

This happens more than you might think. Trying to decide what should happen in this situation when you’re already in it is almost impossible. It’s easier to make these provisions right at the start of a business relationship.

If disputes do arise in the future, a shareholders agreement can provide a vital ‘default position’.

Protect minority shareholders

A shareholders agreement can protect or even enhance the power of minority shareholders. Giving them more rights to dividends and more say during voting.

Controlling the transfer of shares

If a shareholder wants to sell their shares, a shareholders agreement can grant the ‘right of first refusal’ to the other shareholders.

This is especially useful where the initial shareholders want to keep hold of all shares. It prevents outside investors and unknown individuals coming in and making decisions.

Shareholder agreements are also good tools for deciding what should happen if a shareholder dies.

Forcing compulsory transfer of shares at the end of employment

A shareholders agreement can link a person’s shareholding to their employment. So if they were to leave, they have to offer their shares up for sale.

Without such an agreement, an ex-employee could hold onto and benefit from those shares indefinitely.

Creating restrictions

If a shareholder leaves the company, others might wish to set certain restrictions.

One of the most common examples is preventing the exiting shareholder from setting up or working in a competing business.

Show business stability

A shareholders agreement can demonstrate your company’s stability. It can show that you’ve planned ahead and that any issues or disputes will be dealt with quickly and easily.

This is important when dealing with banks and creditors you might seek investment from.

Managing directors

Removing an under performing director can be almost impossible without securing the power to do so in a shareholders agreement. This document can speed up the process of the Companies Act and reduce any commercial damage they might cause.

Why choose Rothera Bray to draft a shareholders agreement?

We have a lot of experience in drafting shareholders agreements for small and large businesses.

We will help you address the following;

• The proposed nature of your business
• How the company will be run
• How decisions will be made
• Shareholders rights and obligations
• Procedures for issuing and transferring shares
• Process of appointing and removing directors
• Process for resolving disputes
• Minority shareholder protections
• How and when dividends will be paid
• What happens when a shareholder exits the business
• What happens if a shareholder dies
• Non-competition agreements
• Circumstances in which the business could be sold

We can also advise you on how estate planning can factor in to your shareholders’ agreement.

Where appropriate, we can review your articles of association to ensure they complement your shareholders agreement.  We can check if amending your articles of association would be more suitable in your shareholders agreement.

If you don’t have a shareholders’ agreement in place and a dispute has already arisen, our specialist commercial litigation team can help you reach a resolution.