What to include in a shareholders agreement in the UK
November 27, 2022
If you have a shareholders agreement, it can help reduce risk if there is ever a disagreement among the owners of your business. This agreement can help protect your interests if something goes wrong.
A shareholders’ agreement is a legal document that can provide clarity on how decisions will be made, how new shareholders can be brought in and what will happen if a shareholder leaves the business, wants to sell, transfer or even dies. This document can be particularly useful for businesses that have more than one owner.
If you are a new shareholder, selling shareholder, or wanting to invest in a business, it is a good idea to talk to a law firm. This way, you can make sure that the right clauses are included in any agreement. Having legal expertise behind you will help you make important decisions.
Why you need a shareholder’s agreement
This legal document helps to set out the rules that the shareholders will follow. This can help to prevent disagreements or misunderstandings in the future. There should be a clear statement of the company’s purpose and objectives. It will help ensure that everyone is working towards the same goal, such as helping the business grow.
Next, each shareholder’s role and responsibilities should be outlined. This will help to avoid any confusion about who is responsible for what.
The agreement should say what will happen if one of the shareholders leaves the company. This will make sure that there is a clear process for what happens to their shares when they leave. Itmight be because they are selling their shares, transferring them to someone else, or because they are no longer part of the company.
Making sure your shareholders agreement has these key elements can help to make it as strong as possible.
What needs to be included in the agreement?
Some key things to include:
Names and addresses of the corporation and shareholders
Who owns the shares?: The type and number of shares each shareholder owns, as well as what happens if a shareholder passes away.
Other share details: For example, how are shares valued in a company where shareholders are forbidden from transferring them?
Corporate management: What is a shareholders involvement in other areas of the business, including business operations, finances, capital, assets
Agreement duration: When does the shareholder’s agreement begin and end?
Capital requirements: When you need additional capital, how should you distribute it?
Shareholder disputes: Disputes may happen for a variety of reasons. Will your shareholder’s agreement have clauses for this?
Dividend policy – how and when are dividends paid?
Protecting minority shareholders – what clauses will protect minority shareholders or give majority shareholders a greater say in the business?
Dispute resolution – how can you avoid shareholder disputes over certain issues? Who has the final say and what is the resolution process.
The process for buying, selling, transferring and issuing shares. Who has refusal or approval?
Rights and responsibilities of company directors or employees who are also shareholders
Decision-making processes on the direction of the business
Privacy and confidentiality
Sometimes businesses and their priorities change over time. This can lead to disputes among the shareholders. For example, if some shareholders are directors and some are not, they will have different roles, responsibilities and expectations.
Conflicts can happen when people have different opinions about things like salaries, bonuses, and dividends. This is especially likely to happen when someone has more power than someone else, like a director who is also a shareholder.
Certain clauses in the shareholder’s agreement can help mitigate this risk.
There are two types of share transfers: unintentional and intentional. Unintentional transfers can happen when someone dies or goes bankrupt. Intentional transfers can happen when someone wants to get personal gain, or when they’re trying to pay off a debt.
Other shareholders can restrict who gets the shares and how they are used by setting rules about transferring them and giving people certain powers.
The future of the business
Businesses change over time by modifying the goods or services they offer, or where or how they operate.
Some adjustments are riskier than others. This is especially true if shareholders take on new roles, such as trading with a business that is majority owned by one shareholder.
The terms of an agreement should state when shareholders must give their approval for company changes. For example, the board might produce a corporate plan that investors then approve. This would give direction to the business.