A shareholders’ agreement is a private contract between the shareholders of a company. Its purpose is to set out the terms of how the shareholders agree the company will be run. Without a shareholders’ agreement in place, you may be reliant on the provisions of the Companies Act which may not deal with matters as you’d expect.
For example, under the Companies Act:
1. there are no pre-emptions rights in place. This means that any shareholder may transfer any of his shares in the company to any third party without having to first offer them to the other shareholders.
2. the directors can be removed by a majority vote of the shareholders or directors.
3. there are limited protections in place for minority shareholders (i.e. those owning less than 50% of the shares) who will have little control or say in the running of the company.
4. shareholders have no right to be provided with information relating to the company, including financial information, board minutes etc.
Under a shareholders’ agreement you can ensure that the above matters are dealt with in the way that you want, rather than as set out in the Companies Act. In addition, the shareholders’ agreement can also include other matters including a dividend policy, restrictive covenants, confidentiality undertakings etc.
It is important to have the shareholders’ agreement in place from the outset. This can not only save you significant costs in the future, in the event that there is a dispute between the shareholders, but it can also be a positive exercise to ensure that there is common understanding between the shareholders as to how the company is going to be run. If there are any areas to which the shareholders can not agree then this may raise concerns about their ability to run the business together in the future.
To speak to someone in more detail about the benefits of having a shareholders’ agreement in place, or about any other commercial contract, then please don’t hesitate to contact me or another member of Farleys’ specialist commercial department on 0845 287 0939, or alternatively please complete an online enquiry form.