Although there is no legal requirement to agree a shareholders’ agreement it could well save you a lot of trouble should disputes/conflicts arise further down the line between you and your fellow shareholders.

Understandably, putting in place an agreement of this kind is not a priority in the crucial first stages of starting your business, but the clarity and certainty that it brings can often be well worth the effort as your plans for the company, and those of your fellow shareholders, may well change and/or conflict once the business is up and running.

The way this type of agreement can help is that it sets out the parameters within which shareholders are able to influence the company from the outset. For example, what decisions must be made by consensus? What percentage of shareholders must agree to the appointment of new directors or the selling of large assets? These are often key decisions and having the clarity of a shareholders’ agreement can help prevent deadlocks and other issues.

Other key benefits of a shareholders’ agreement:

  • As opposed to the Articles of Association, which are public documents available on Companies House, a shareholders’ agreement is private and so not available to be reviewed by 3rd
  • Although the directors will be responsible for the management of the company and so decisions will largely be taken by the board, certain key decisions are still referred to the shareholders. An agreement will help to outline the scope of the directors’ powers and ensure that both majority and minority shareholders are involved in the decision making process when applicable.
  • Some lenders and creditors are more ready to provide funding where a shareholders’ agreement is in place as it helps to demonstrate the stability and transparency of the business to other potential partners.
  • Shareholders’ agreements can help alleviate difficult scenarios where a shareholder’s personal circumstances can create issues, and so this safeguards other shareholders’ financial interests.
  • Minority shareholders are better protected with a shareholders’ agreement in place as the statutory protections are very limited. A shareholders’ agreement can only be amended if all shareholders agree. A Special Resolution to change the Articles however only requires 75% of the voting shares.

Get in Touch

Should you find yourself thinking of starting up a new business and would like further information on whether an agreement would be best for you, then please contact Martin Reynolds, Head of our Commercial Department on 0118 958 9711 or email [email protected].

Martin offers a 1-hour fixed fee meeting at our Reading office for £95 inc. VAT.

Further Reading:

What are alphabet shares and why you may want to have them – The Reynolds Report

Is Brexit an excuse for breach of contract?

Do You Know All the Legal Facts About Statutory Sick Pay?

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