What is a shareholder agreement?
A shareholder agreement is a contract between the shareholders of a private company. A shareholder is someone who owns a portion (or a share) of a company's stock - otherwise referred to as equity.
Most of the time, these agreements are signed when a company is set up. This is because an agreement allows founding partners and senior employees to benefit from rising share prices as the company builds and flourishes.
How shareholder agreements work
A shareholders' agreement clarifies the rights, responsibilities and privileges of shareholders. It also sets out the foundation for how a company will be organised, governed, and run.
A company's Articles of Association and the Companies Act 2006 cover shareholders' rights and responsibilities to a certain extent. However, protections are unlikely to be adequate. A shareholders' agreement provides additional protections over and above these.
In addition to this, it is better if certain matters are laid out in a shareholders' agreement rather than a company's Articles of Association. This is because a shareholders' agreement is private, whereas Articles of Association can be viewed by anybody through Companies House.
Why do you need a shareholder agreement?
A shareholders' agreement can protect your business by covering aspects such as:
- How the business is run and how decisions are made.
- How majority and minority shareholders are protected.
- If a person leaves the company, what happens to their shares.
- What happens if a shareholder becomes seriously ill or dies.
- What happens if a shareholder wishes to sell their shares.
- How dividends are paid to different shareholder classes.
- How dilution of shares will be controlled.
- The procedure for transfer of shares.
- The procedure for managing and resolving shareholder disputes.
- What happens if shareholders cannot agree on a specific matter and find themselves in a deadlock.
- This list is not exhaustive. Shareholders' agreements are tailored to individual businesses.
Who should enter a shareholder agreement?
If your business has two or more shareholders, it is advisable to consider a shareholders' agreement.
Even if you have run a business with someone else for a long time and there is a high degree of trust between you, a shareholders' agreement is still a good idea. Nobody knows what the future holds, and an agreement provides all parties with clarity and peace of mind.
You might enter into a shareholder agreement when:
- Setting up a new business. Having an agreement in place at the beginning of a business venture ensures each shareholder understands the direction of the company. It also helps shareholders to plan for any issues that may arise in future and potentially cause disputes.
- Buying a business with others. A shareholder agreement is a legally binding document that sets out the conditions and obligations of all parties, reducing the chances of costly and disruptive disagreements.
Even if your business is well established, it is still well worth thinking about putting a shareholders' agreement in place.
How we can help
Parkinson Wright solicitors can help you with the following:
Creating new shareholder agreements
We can draft bespoke shareholder agreements to protect your interests, whether you are starting a new business or investing in a company.
Reviewing and amending existing shareholder agreements
It is very important to review shareholder agreements often. This is because businesses constantly change and evolve over time. A shareholders' agreement needs to reflect and promote your current business needs.
Resolving shareholder disputes
A carefully drafted shareholders' agreement greatly reduces the chances of disputes escalating. Shareholders' rights and responsibilities are clear from the outset, and the dispute resolution process is laid out.
However, if you are faced with a shareholder dispute, our solicitors can work closely with you to resolve the issue whether or not an agreement is in place. We will do everything possible to settle the matter quickly, out of court where possible, to keep costs to a minimum and limit any damage to your business.
Why choose Parkinson Wright shareholder agreement solicitors?
Shareholders' agreements are flexible contracts that can cover many areas. Our solicitors have years of experience in drafting bespoke shareholders' agreements and reviewing existing agreements for our clients.
We will make sure your shareholders' agreement covers all the possible scenarios your business could face over time. By promoting positive relationships between shareholders, a carefully drafted agreement can help your business to thrive.
Parkinson Wright solicitors have several accreditations, so you can rest assured you will receive expert legal advice and the highest level of customer service.
Solicitors Regulation AuthorityRegulated and authorised by the Solicitors Regulation Authority (SRA).
Lexcel Quality MarkWe have achieved the Law Society’s Lexcel Legal Practice quality mark, which sets the standard for client care.
Get in touch
We offer a Free Initial Assessment, so you can call us without charge or obligation to discuss how we can assist you.
To arrange your Free Initial Assessment at a time convenient to you, please call 01905 401 893.