A shareholders’ agreement is an important document for limited companies. It ensures your business is making the right decisions for all parties.
When it comes to making decisions within limited companies, company law states that shareholders who own more than 50% can pass a motion at a company meeting regardless of the views of other shareholders.
If a shareholder(s) owns more than 75% of the shares, they control the company outright and can veto the decisions of all other shareholders.
This may not suit all business situations, however. This is especially the case where you have two or more founders holding equal share capital or a group of owners with varying amounts of capital, some of whom are directors and some of whom are not, but who are all working together for the company’s success.
How a shareholders’ agreement can help
A shareholders’ agreement is entered into between all or some of the shareholders in a company. It regulates the relationship between the shareholders and the management of the company, ownership of the shares and the protection of the shareholders. They also govern the way in which the company is run.
The agreement can help define how a business makes decisions for the benefit of all owners, and is recommended where:
- A small number of owners want to reach collective and fair decisions for the benefit of all
- Some owners may want to be able to influence decisions that are particularly relevant to them
- Some shareholders may not be directors and cannot influence operations on a day-to-day basis
Typically, it aims to deal with the three “Ds” of death, disability and disagreement. It may also cover a variety of other significant areas. For example, retirement and buyback of shares.
What are the key areas of a shareholder agreement?
Please note that the list below is not comprehensive as each situation is different. It may help you collect the thoughts of all shareholders before you draw up an official agreement, however.
- Company details including structure, directors and officers
- Purpose and aims of the company
- Equity split of shareholders
- Parties to the agreement
- Shareholders’ rights, obligations and commitments
- Decision-making processes on major issues, required voting majorities and day-to-day operating decisions
- Restrictions on the sale of shares
- Rights of first refusal and pre-emptive rights to acquire shares on leaving, retirement, death or disability
- Death, disability and other retirement compensation payments
- Management contracts, director approval and remuneration amounts
- Insurance and other protective requirements
- Professional advisers and change of professional advisers
- Dispute resolution
- Changes to and termination of the agreement
- Buy out provisions for leaving shareholders
- Valuation of shares on changes and valuations of the business
Our view is that a shareholders’ agreement is an essential document for any limited company and an equitably drafted agreement should provide comfort to all parties.
Please talk to us if you need help planning an agreement, especially where there are several shareholders, a new company is being formed, a shareholder wants to sell their shares or pass them to their children, someone is nearing retirement, or the company has borrowed money from a shareholder.
We can help with share and company valuations and put the shareholders’ wishes into an agreement with a local solicitor.
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