Shareholders Agreements

Shareholders agreements

It is always a good idea to have a shareholders agreement in place to make sure that everyone is clear on each other’s obligations and expectations.

It’s a little like writing a will. You’ll be thinking about the what-ifs and exit plans then agreeing on how these issues should be dealt with.

Things are rosy at the outset of the business and this might seem like overkill, but having seen the urgent need for anything in writing to point at, we know it’s absolutely crucial.

The company’s articles of association will set out the basics of how shareholders can make decisions but these are almost inevitably ‘off the shelf’ – a shareholders agreement can take this much further, and in most cases, will ‘trump’ the provisions in the articles themselves.

While every day running of a company is generally left to the directors, the shareholders as owners of the company may decide that there are certain decisions that should not be left to the directors alone, and instead require shareholder approval, particularly if there are directors who are not also shareholders. Having these decisions set out in the early stages means that there is no dispute about who can make decisions.

You will also need to think about dividends and whether you will all want to be paid the same at the same time, possibly not, and we’ll work with your accountant to set up the right structure for you.

If you’re all wearing all the hats, as directors and shareholders, you can reduce the matters shareholders need to vote on but you may still need to deal with ‘deadlock’ where there are even numbers of you on the board and as shareholders. If you have no mechanism to get out of an evenly split vote or can’t get to a unanimous decision where one is needed, it can be the death knell for the company.

We also have a keen eye on the balance between majority and minority shareholders and what votes look like.

A shareholders agreement is also very useful for laying down who gets ‘first dibs’ on any shares that a shareholder may wish to sell up, and ensure that they aren’t sold to a stranger. After all, you will have decided to go into business with your business partner for a reason. It can also be included what events would trigger a shareholder to be forced to sell their shares, whether that be back to the company, or to another shareholder.

Restrictions can be included so that, if someone leaves, you can restrict their activities for a certain amount of time after their departure, to stop them going into competition with you, taking your employees with them, or poaching suppliers. It is useful to have these agreed from the outset, rather than once a relationship has broken down.

Aside from a shareholders agreement assisting the shareholders internally, having one in place can also assist the company. Having such an agreement in place shows stability for the business, which can make the company and its business look more appealing to lenders and investors.

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Shareholders Agreements