Shareholder Agreements

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Why Do We Need An Agreement?

Limited companies all have a set of rules that govern the way the business is run and managed. These rules are called “Articles”. The company directors are usually responsible for the day to day running of the business with shareholders making decisions on a few important matters. Shareholder decisions are usually made by a majority vote i.e. more than 50% of the shareholding so that majority shareholders can overrule minority shareholders.

Standard company Articles do not set out clearly how decisions about the business are to be taken, how shares are to be valued, in what circumstances they can be transferred or sold or what happens in the event of a dispute between shareholders.

Many shareholders believe they have an informal understanding with their fellow shareholders about these matters which is fine, until there is a disagreement.

What Happens If We Don’t Have An Agreement?

When there is disagreement over how the business is run, or a shareholder wants to leave or transfer shares there is no written formula for how to deal with these issues. If the shareholders cannot agree then the company becomes effectively paralysed.

This is likely to be extremely damaging to the business and will be costly to resolve. Getting the right legal advice and anticipating these issues will save future time and money.

What is covered in the Shareholder Agreement

    • Procedures issuing and transferring shares
    • The constitution of the board of directors and how they are to be paid
    • Borrowing levels and how future funding is to be dealt with
    • Appointment and removal of directors
    • Dividend policy
    • Changes to the Articles
    • Exit arrangements – buying people out, share valuation and disputes
We recommend that you seek legal advice before entering into a shareholder agreement or taking other legal steps on behalf of your business.

 

What To Do Next

Contact Us if you think you may need a shareholder agreement and speak to a specialist solicitor.

Download our Shareholder Agreement Questionnaire , fill it in and email it to Rob Andrews or Charlotte Wood.