In an ideal world there would be no disagreements between shareholders, nor would a change in personal circumstances lead to a shareholder needing to leave a company.
Due to the uncertainty of the future, it is vital that shareholders have an agreement that sets out what happens in the event of things going wrong.
Essentially, a shareholders agreement provides clarity to all shareholders on what can and cannot be done in various circumstances, for example, if a shareholder wants to leave a company or passes away.
What is a shareholder agreement?
It sets out the agreement between the shareholders and establishes how the business will be run and what to do in the event of certain issues springing up.
Shareholder agreements are governed by contract law and can be amended or dissolved by an agreement. It is also a private document, so does not have to be made public or registered with Companies House.
Why it is a good idea to have a shareholder’s agreement
The agreement helps to protect the shareholder’s investment in the company and helps to create a fair relationship between them.
It helps to create an equal distribution of power and works to protect the rights of minority shareholders.
It can also help to set out strategies for when complications arise, such as if a deadlock occurs between different shareholders, or a shareholder decides they want to sell their share in the company.
What should be included in an agreement?
The agreement should set out detailed rules for the company and will deal with questions involving:
- The purpose of the company
- How will the company be funded
- What decisions should be made with unanimous consent
- Issues around the selling of shares
- Decisions around directors and their responsibilities
- What plans are in place if a shareholder decides to exit the company
- How will disputes between shareholders be resolved
Do you need advice on shareholder agreements? For expert support on this and other legal corporate issues, contact our team today.