While putting a Shareholder Agreement in place is optional for companies, it certainly makes sense to have one due to the additional protection that it can provide, especially to minority shareholders. However, when drawing one up, there is no one size fits all solution. The provisions and contents of each Shareholder Agreement will vary depending on several factors, including the entity’s nature. Nevertheless, while each Agreement must be tailored to suit the individual organisation, there are some basic elements that are contained in all Shareholder Agreements.
Which Elements Are Found In Every Shareholder Agreement?
Some basic components found in all Shareholder Agreements include:
- How many shares are issued.
- The date on which the shares were issued.
- The rights attached to such shares (for example voting powers).
- The Shareholders’ percentage of ownership.
What Else Is Covered In A Shareholder Agreement?
A Shareholder Agreement will usually determine how shares are sold and transferred to third parties in certain situations, for example when a shareholder wishes to exit a company, or if their employment is coming to an end. It will also typically illustrate how shares are treated should a shareholder die. Pre-emption provisions will ensure the existing shareholders are given access to any new shares before they are able to be issued to any other potential shareholder (as well as existing shareholders first having to offer their shares to the other shareholders, should they wish to sell). A Shareholder Agreement will also usually cover details regarding dividend payments as well as how earnings are distributed.
When it comes to the operation of the business, the Shareholder Agreement will usually contain provisions regarding how often board meetings are held and the resignation or appointment of company directors. It will also outline what the process will look like at different decision-making levels.
Some Shareholder Agreements will include Deeds of Adherence which ensures adherence for new shareholders to the agreement already made with pre-existing shareholders. They will also frequently include competition restrictions (also known as restrictive covenants). These prevent shareholders from going into competition with the organisation. This is crucial, since it offers protection not only to the company itself, but also to the other shareholders’ interests.
Call to action: We have an excellent team and you can contact us at Carter Bond Solicitors on 020 3476 6751 or by email info@carterbond.co.uk to find out more about Shareholder Agreements and how they could benefit your organisation.
Disclaimer: This note comprises the view of the author at the time of writing. This note is not a substitute for legal advice. Information may be incorrect or out of date and may not constitute a definitive or complete statement of the law or the legal market in any area. This note is not intended to constitute advice in any specific situation. You should take legal advice in specific situations. All implied warranties and conditions are excluded, to the maximum extent permitted by law.
