Shareholders’ Agreement

Shareholder Agreements

Businesses often begin with a friend or colleague using a limited company. At the early stages of a business relationship, focus tends to be on developing the business and shareholders often do not plan properly for the future.

Shareholders can by way of a shareholders' agreement benefit greatly from putting in place a mechanism for dealing with future changes in circumstances.

A shareholders' agreement, unlike the company's articles of association, is not a document that is required to be shown on the public record.

What is a shareholders agreement?

A shareholders’ agreement is a legal document used to regulate the relationship between shareholders within a company. Its purpose is to protect a shareholders investment and establish a fair relationship between the shareholders, the business owner(s) and the way in which all parties govern how the company is run.

Why should you make a shareholders agreement?

There are different reasons why a company will need a shareholders agreement. Some of the common reasons why it should be created are listed below.

  • Setting our the rights of the shareholders
  • Offering protection to the shareholders
  • Control of the transfer of shares
  • How to resolve disputes
  • Set out a dividend policy

It is common for new business owners to forego the use of a shareholders agreement. This could be due to the lack of awareness about having one or the costs involved. However, it can be very costly and difficult to resolve issues without a shareholders agreement.

How can Carter Bond help you with your shareholders agreement?

At Carter Bond, we are different. We have greater expertise than other firms in drafting shareholders agreement based on our experience and the fact that all our solicitors run their own business so they know what it’s like to be the other side of this legal service.

Using our shareholders agreement services, you will be able to:

  • Ensure no-one can sell their shares to a third party without the other shareholder consent
  • No-one can encumber the shares,
  • Upon death the shares go to the family at market value,
  • Shares can't be diluted,
  • Set out dividend policy

We can offer help beyond drafting a shareholders agreement. If you need a shareholder contract prepared, have been offered an agreement already drafted or perhaps need to adjust, edit or renegotiate an existing shareholder agreement Carter Bond can assist.

What specific things you need to be aware of for your shareholders agreement?

We have set out a few of the top headlines to be considered for your shareholders’ agreement:

  1. Deadlock Resolution - avoiding disputes because the parties have already agreed what should happen in certain circumstances. For example, how to deal with deadlock in the event of equal shareholdings.
  2. Drag Along - if the majority of shareholders want to be sure that they can sell 100% of the business they can have the rights to “drag along” minorities.  Drag along usually operates to ensure the minority shareholders dragged into the sale receive the same consideration as the majority.
  3. Tag Along - these rights protect minority shareholders.  Tag along rights allow a minority shareholder to sell if a majority shareholder sells.
  4. Pre-emption Rights -  this is a prohibition or restriction on the transfer of shares. This often includes a right of first option for existing shareholders to buy shares before a shareholder can transfer to a third party.

What we can help with your shareholders agreement?

  • Reviewing or drafting shareholders' agreements.
  • Assist in resolving shareholder disputes.
  • Advise on the different classes of shares and rights attached to it.
  • Assist with share transfers.

FAQ - Shareholders Agreement

What is a shareholders agreement?

A Shareholders Agreement is a private agreement between the shareholders of a company which regulates the operation of the company and commonly sets out detailed rules in relation to matters which affect or could affect the shareholders and company.

What is the purpose of a Shareholder Agreement?

The Shareholder Agreement regulates the relationship between the shareholders, the management of the company, ownership of the shares and the protection of shareholders.

Why enter into a shareholder agreement?

· To ensure that future problems are avoided for example disputes between shareholders and directors;

· Deal with directors’ conflicts;

· Deal with removing a shareholder; and

· Resolve company deadlock.

What is deadlock?

Deadlock is a term used to describe the situation where a fundamental decision relating to the company cannot be made due to an equality of votes. Deadlock is a common area of dispute and arises where shareholders can’t agree on the future of the business.

A Shareholders Agreement can deal with deadlock, for instance by requiring any deadlocked matter to be referred to an independent expert.

What can be covered in a shareholders agreement?

We always advise for a Shareholders Agreement to be bespoke to the requirements of a company and its shareholders, the sort of matters which they deal with typically include:

§ The management and operation of the company.

§ The roles of any shareholders who are directors.

§ Protection against deadlock.

§ The transfer of shares and pre-emption rights.

§ Good and bad leaver provisions.

§ Drag and tag rights.

§ The calculation and payment of dividends.

§ Restrictions on shareholders should they cease to hold shares.

§ Minority protection provisions.


Reena Popat

With over 10 years experience, Reena has significant knowledge and expertise when it comes to corporate and commercial matters. She is best placed to draft any agreement you require for your business.


Naju Chowdhury

Naju recently qualified has a solicitor in 2019 and mainly specializes in corporate and commercial matters. She has experience working with clients globally, specializing in international commercial needs as well as the UK.

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Shareholder Agreement Solicitors
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