A shareholders’ agreement governs the relationship between all the shareholders of a company – as distinct from the articles of association (also known as constitutional documents) which instead manage the relationship between the shareholders and the company itself. Although there is some overlap between these two documents, and they are generally used together, shareholders’ agreements have several advantages, particularly for smaller businesses which are run more like a partnership. They help to establish the rules which shareholders must follow in running their business and reduce the likelihood of disagreements if things go wrong.
Why get a shareholders’ agreement?
There are various benefits of drawing up a shareholders’ agreement for your business. One of their most important functions is to protect the rights of minority shareholders. An agreement can set out rules which require specific voting procedures or rights which may otherwise be overlooked by a majority shareholder. It can regulate the appointment and removal of directors, the raising of capital and can place restrictions on changes to the nature of the company’s business. Where a deadlock occurs, an agreement can outline a procedure which makes it easier to find a resolution. Furthermore, unlike the articles of association, which are open for public inspection at Companies House, the terms of a shareholders’ agreement remain confidential.
What are the main provisions of a shareholders’ agreement?
Although the terms of a shareholders’ agreement can vary considerably depending on the type of business or commercial sector, they often deal with voting agreements, transfer of shares, dispute resolution and the protection of company interests in the event that a shareholder leaves or wants to become involved in a competing business. However, it’s recommended that you discuss your particular requirements with a lawyer who can help you draw up a bespoke shareholders’ agreement which is right for your business. To find out more, get in touch with Mohammed Asif Malek or call 0845 4786 354.