A Shareholders’ Agreement is a contract between the shareholders of a company. It regulates the relationship between the shareholders and governs how a company is to be run.
Without a shareholders’ agreement in place, you may face disagreements between your shareholders on matters such as whether any important decisions, such as issuing more shares which dilute the power of existing shareholders or purchasing another business, need consent from all or nearly all shareholders; if any shareholder can transfer their shares as they think fit without first offering them to the other shareholders; and when your business is sold and how you go about this.
In the absence of a shareholders’ agreement, unless a matter specifically requires shareholder approval under company law or under the terms of your articles of association, it will be decided at the board level by default. This can be undesirable for certain key or sensitive decisions.
You should also bear in mind that if ownership of your company is shared evenly (for instance a 50:50 jointly-owned company), without a Shareholders’ Agreement there is also a chance of deadlock occurring. In the absence of a Shareholders’ Agreement, if the joint-owners of a company disagree on a certain matter, it can be very difficult to find a solution. A Shareholders’ Agreement seeks to pre-empt this by clearly allocating responsibility for decisions on certain key matters, and including a mechanism for resolving any deadlock which might occur.
This agreement can be tailored to your company’s requirements and is an important tool to help ensure the smooth running of your company and minimise the risk of disputes between shareholders. In particular, it includes important provisions setting out how and when shares can be issued or transferred, who should be responsible for approving shareholder decisions on certain important matters, and ultimately how and when your company can be sold.
This Shareholders’ Agreement contains provisions regarding:
- the business of your company;
- the composition and chair of your company’s board;
- transfer of existing shares and issue of new shares;
- what happens when a shareholder dies;
- which decisions should require shareholders’ consent;
- when minority shareholders can be required to sell their shares; and
- how shareholders should resolve any deadlock or dispute which might occur.
This template Shareholders’ Agreement should be signed by a director on behalf of your company, and by all of your company’s shareholders.
Become a Strand Sahara member for just £35 a month to access our Shareholders’ Agreement and many more agreements and templates for your business. Find out more here: Standard Membership
