A Shareholder Agreement is a term used to refer to an agreement which some or all of a company’s shareholders enter into. The agreement is designed to regulate the shareholders’ relationship as well as the company’s management and shares ownership. It also offers protection to the shareholders and regulates the way in which decisions are made. A Shareholder Agreement effectively governs how a company is run. Sometimes, the shareholders’ agreement is used alongside the company’s Articles of Association (commonly known as the ‘rulebook’ of a company) that have been specifically drafted for the company in question.
What are the benefits of a Shareholder Agreement?
The greatest benefit offered by a Shareholder Agreement is the protection and safeguarding it brings to the shareholders. This is because it provides a solution for what will happen should something go wrong.
Do I need a Shareholder Agreement if Articles of Association are in place?
Articles of Association are a constitutional document of a company, setting out rules about how the organisation is run, such as outlining how power is divided between the directors and shareholders and which rights each have.
A Shareholder Agreement will provide a contractual solution if the terms of the contract are broken while Articles of Association are designed to prevent disagreements from arising in the first instance. Therefore, it makes sense for companies to have both in place for optimal protection.
What can a Shareholder Agreement provide for?
Shareholder Agreements may provide for numerous eventualities. These may include:
- The company’s financing.
- How the company is managed.
- Its dividend policy.
- Which procedure will be followed when shares are transferred.
- How deadlock situations will be handled.
- How the shares are valued.
What can happen without a Shareholder Agreement in place?
If there is no Shareholder Agreement in place, there is always the possibility of disagreements and disputes breaking out between shareholders. There are provisions contained in a Shareholder Agreement which pre-empt disputes and outline the appropriate way to address disagreements.
All too often, people will set up a business with a relative or friend and fail to protect their interest in the business until something has gone wrong. The company’s Articles of Association may fail to offer full protection to a shareholder, which is why the two should be used in conjunction to offer as much protection as possible.
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 whether a Shareholder Agreement can benefit you.
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.1
