Shareholders’ agreements

Should your business have a shareholders’ agreement?

Does your shareholders’ agreement reflect your current business structure?

Preparation of a shareholders’ agreement is recommended for any business that has more than one shareholder. You may be getting on well with your co-shareholders now, but if there should be a disagreement in the future then it is important to have some protection and agreed procedures to resolve a shareholder dispute.

A shareholders’ agreement is a simple agreement that can be amended as a business grows and new shareholders are admitted. The agreement is confidential and is not filed at Companies House, unlike articles of association which are on public record, and so allow shareholders’ to keep certain matters between themselves.

Properly drafted (together with a set of matched articles of association), a shareholders agreement will document:

Decision-making

• agreement as to what business the company shall carry out;
• provision that certain key decisions must be taken only by a majority of the shareholders or all of them;
• what happens if there is a deadlock between the directors and/or shareholders on any decision e.g. the directors/shareholders can take it in turns to act as chairperson with a casting vote or the company is wound up if the deadlock cannot be resolved;
• a policy as to the payment of dividends and salaries;
• a policy on further finance from the shareholders; and
• a requirement for board minutes and management information to be distributed to the shareholders.

Conduct

• restrictive covenants governing a shareholder’s conduct whilst a shareholder (non-director shareholders are generally not prohibited from competing with the company);
• the procedure that should be followed in the event of a dispute; and
• obligations of confidentiality by the shareholders.

If your company might benefit from a shareholders’ agreement and new articles of association, or if you feel that your current arrangements need updating, the corporate and commercial team at Myers & Co can assist you.

Based in Stoke-on-Trent, Staffordshire, our commercial lawyers have a reputation for providing accurate advice, and dealing with complex problems in an efficient manner.   To find out more, contact us on 01782 577000.