What is a Shareholders' Agreement?

A shareholders’ agreement is a contract between the shareholders of a limited company which outlines each shareholders rights and responsibilities.

Amongst other matters, a shareholder agreement generally includes shareholder’s obligations and rights, rules on how to manage business decisions, how shares can be transferred, and how their relationships will be regulated.

What is the Purpose of a Shareholders’ Agreement?

Having a shareholder agreement protects the interests of the shareholders and allows them to customise the governance of the company, ensuring that they are treated fairly and that their rights are protected.

It also allows them to plan for a shareholders exit or perhaps a shareholder dispute that may arise in the future by outlining clear mechanisms to deal such circumstances. 

Do I have to have a Shareholders’ Agreement?

It is not a legal obligation to have a shareholders’ agreement. However, if there isn’t one, it can cause a lack of certainty about how to deal with certain situations. This can lead to disputes and confusion amongst shareholders. 

Should issues arise ,all of the shareholders understand and have previously agreed how to deal with many given circumstances – matters can be dealt with swiftly,  and any disputes are handled in accordance with previously agreed terms.

What should I include in a Shareholders’ Agreement?

The contents can be customised to the needs of each individual business, however, typically they will have clauses to cover:

1. Special/reserved matters that require shareholder approval;
2. When and how a shareholder can transfer/sell their shares;
3. What happens if a shareholder leaves, retires or dies;
4. Restrictive covenants; and
5. Minority shareholder protections.

What is the difference between Shareholder Agreements’ and Articles of Association?

There is often confusion around the difference between shareholders’ agreements and articles of association. The main difference is that shareholders’ agreement are private documents, and they are not a legal requirement.  Whereas it is a legal requirement for all companies to have a set of articles of association. Articles of Association are public documents (prepared on the incorporation of a limited company) that are available to view on Companies House. 

Can I draft my own Shareholders’ Agreement?

A shareholders’ agreement is a legally binding document. Therefore, getting the content correct is imperative and the specialist advice of a solicitor is recommended. 

How Can We Help?

If your business is in need of a shareholders’ agreement, we are here to help. Simply get in touch with us today by either calling 0330 123 1229, send an email via info@smithpartnership.co.uk or complete our contact form.