Shareholder Agreements explained

Why should I consider putting a shareholder agreement in place?

A shareholders’ agreement regulates the way shareholders conduct business between one another. During the initial stages of a business relationship it is often the case that shareholders of a company handle business on friendly terms and often agree on the ways the business should operate without the need of a contractual agreement governing their status, however, this can become problematic if unforeseen issues between the shareholders arise down the line.

This is why it is important that a shareholders’ agreement is entered into as soon as possible if there are two or more shareholders’ in the company. A contractual agreement between the parties could prevent future uncertainty and could even encourage any issues to be resolved amicably.

Another attractive benefit of entering into a shareholders’ agreement is that it does not need to be filed at Companies House, therefore, the contents of the agreement remain confidential and out of public domain unlike the company’s articles of association.

What issues should a shareholders’ agreement cover?

Typically a shareholders’ agreement will cover matters such as:

  • Dividend distribution;
  • Deadlock provisions;
  • Shareholder termination;
  • Restrictive covenants;
  • Reserved matters requiring 75%/unanimous agreement;
  • Share transfers; and
  • Confidentiality.

Each and every shareholders’ agreement is unique as is each and every business. The agreement should cover matters which align with the requirements of your business and should be updated accordingly to remain applicable at any given time.

Will new shareholders be bound by the shareholders’ agreement?

A new shareholder will not automatically be bound by the shareholder’s agreement unless there are express provisions within the agreement stating so.

Ordinarily the new shareholder will have to execute a deed of adherence to the agreement upon subscription or transfer of shares.

Contact the corporate team at Glaisyers to ensure your shareholder’s agreement is perfectly tailored to your business model and offers the desired protection to the company and shareholders alike.

Bethanie Bailey

Author Bethanie Bailey

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