3rd September 2024
A shareholders’ agreement is essential for protecting the interests of all shareholders. Unlike a one-size-fits-all solution, this agreement, along with the company’s articles of association, should be customised to meet the specific needs of your business. Here are ten compelling reasons why having a well-drafted shareholders’ agreement is beneficial for you and your business:
Management of the company’s daily operations should be addressed in the agreement. Provisions should be included that specify which decisions require shareholder approval, especially when shareholders are not also directors. For instance, the process for appointing or removing directors from the board can be outlined to ensure transparency and fairness in the company’s governance.
Having an agreement in place provides you with clear objectives and direction. It serves as a private contract between shareholders, ensuring that sensitive financial and commercial information remains confidential. This allows for the inclusion of detailed provisions tailored to the unique needs of your business, thereby fostering trust and transparency among all parties involved.
As shareholders, disagreements are inevitable. While you hope never to use the agreement due to a falling out, it is crucial to have clear provisions for disputes. These clauses can provide a structured approach to resolving conflicts, ensuring that any issues are addressed swiftly and fairly, thereby minimising disruptions to the business.
The agreement should include specific clauses for mediation or arbitration to swiftly resolve conflicts, protecting the business from prolonged and costly disputes.
Some decisions can be reserved for unanimous shareholder consent, ensuring that all shareholders, regardless of their shares, have a say in key decisions. Tag-along rights can also be included, so if a majority shareholder intends to sell their shares, they cannot leave the minority shareholders behind and must seek a deal that includes the sale of all shares.
Drag-along provisions can be included to allow a majority shareholder to compel minority shareholders to accept an offer for the sale of all company shares. This ensures that a third-party buyer isn’t deterred by the prospect of leaving minority shareholders behind.
Provisions can be added to the agreement requiring shareholders who wish to sell their shares to offer them first to the remaining shareholders, ensuring they have the right of first refusal. Additionally, the agreement can outline procedures for handling shares in the event of a shareholder’s death or incapacitation.
A shareholders’ agreement can include specific policies in relation to declaring dividends. Having a dividend policy in the agreement provides flexibility by allowing different classes of shares to receive varying dividends. This ensures that each shareholder’s dividend pay-out aligns with their share class, offering a tailored approach to profit distribution.
Deadlock provisions can be included in the agreement to address situations where shareholders are unable to reach a consensus. These mechanisms ensure that the business can continue to operate smoothly without suffering from prolonged disagreements.
Often, directors also hold shares, but what happens to their shares if they leave the business? The agreement can ensure that a shareholder’s right to retain shares is tied to their employment status, requiring them to sell their shares upon exiting the company.
A shareholders’ agreement can contain restrictions to prevent shareholders from establishing rival businesses or enticing key employees to leave. The agreement can be amended periodically, ensuring it remains aligned with the evolving intentions and needs of the shareholders.
If you’re considering establishing or revising a shareholders’ agreement, it’s essential to seek professional legal advice to ensure that all aspects are thoroughly covered and tailored to your specific needs.
A robust agreement will not only protect your investments but also fortify the trust and collaboration among you and your shareholders. Myers & Co has an expert team of commercial solicitors who can provide you with an agreement that best suits the needs of your business.
For further information regarding shareholder agreements, please contact Jen Goodwin, Head of the Corporate Law Team on 01782 491025 or email jen.goodwin@myerssolicitors.co.uk. Myers & Co Solicitors has offices in Stoke-on-Trent, Staffordshire.
