14th June 2024
Do you need to have a shareholders’ agreement in place for your business? Corporate and commercial solicitor Jen Goodwin answers some frequently asked questions.
As the name suggests, a shareholders’ agreement is a contract between shareholders that outlines how a company should be operated. The agreement also describes the shareholders’ rights and obligations. Typically, these agreements are between shareholders, however they can also include the company as a contract party. The agreement can include, amongst other things: how shares are to be issued and transferred, funding arrangements and directorships, and how deadlocks are to be settled. The shareholders often want control over how the company operates, so having a document provides clarity for all involved.
It is not essential to have a shareholders’ agreement, but every company with more than one shareholder is advised to have one in place.
The agreement provides protection and certainty, outlining what to do in the event of a fallout between shareholders, what happens to the shares of a deceased shareholder, providing certainty as to dividend rights, voting rights and procedures; The agreement regulates the conduct and engagement of shareholders, helping to structure wider company operations.
Yes, a shareholders’ agreement is a contract between the company and its shareholders and the agreement is governed by contract law. That is not to say, however, that the agreement is completely rigid. A shareholders’ agreement is a private agreement between parties and can be amended by consent.
All shareholders should sign a shareholders’ agreement where there is one in place. Shareholders’ agreements protect the interests of both minority and majority shareholders in numerous circumstances and make for a more structured day-to-day management of the company. Each shareholder should enter the agreement voluntarily.
If new shares are to be issued or existing shares transferred to a new shareholder, the new shareholder will usually sign a deed of adherence. The deed of adherence would be in favour of the other shareholders, agreeing to be bound by the provisions of the shareholders’ agreement meaning the new shareholder is contractually entitled to the same rights and obligations that all prior shareholders had already pre-determined.
Shareholders agreements and articles of association should complement each other. The shareholders’ agreement may reiterate some points set out in the Articles of Association, and between them the two documents should cover as many aspects of a company’s management as possible, including the relationship between parties within the company (the shareholders and directors, for example).
Whereas the Articles of Association are governed and restricted by an extensive range of statutory provisions, shareholders’ agreements do not have to be filed at Companies House, meaning their contents can be kept exclusively for those to whom they apply.
The agreement can only be amended with the consent of all parties, whatever the size of their shareholding. Like with most contracts, as a business grows and evolves, a shareholders’ agreement should be reviewed and amended to ensure it is always fit for purpose.
For further information regarding shareholder agreements, please contact Jen Goodwin head of the corporate law team on 01782 577000 or email jen.goodwin@myerssolicitors.co.uk . Myers & Co Solicitors has offices in Stoke-on-Trent, Staffordshire.
