| A Shareholders Agreement is simply a contract made | | | | conflicts which do arise. |
| between the shareholders of a company. It governs | | | | The benefit derived from entering into such an |
| the relationship between the shareholders, and | | | | agreement does of course depend on your |
| between the shareholders and the company. | | | | circumstances and the nature of the business in which |
| It is important to note that there is no legal requirement | | | | you have invested. Some of the key benefits can be |
| to enter into a shareholders agreement. Also, if | | | | as follows: |
| shareholders do decide to enter into such an | | | | - Controlling the ‘ownership’ of the shares by |
| agreement, there are no legal requirements as to its | | | | imposing restrictions on the transfer of shares and/or |
| contents. These agreements are entered into | | | | mandating transfers in specific circumstances. For |
| voluntarily by the shareholders to provide certainty, to | | | | example in the case of death, mental illness or |
| resolve conflict and to protect their investment in the | | | | bankruptcy. |
| company. | | | | - Establishing procedures to resolve conflicts. |
| How do they work? | | | | - Providing additional protection to minority holders (i.e. |
| The relationship between the shareholders of a | | | | those owning less than 50% of the share capital). |
| company is governed by the applicable law and the | | | | - Regulating the appointment and removal of directors, |
| Articles of Association of the company in which the | | | | and their terms of employment. |
| shares are held (referred to in this article as the | | | | - Setting out how the company is going to be financed. |
| ‘applicable law’). The Companies Act 2006 is | | | | - Setting out clear rules regarding the payment or |
| the key legislation in this area. | | | | dividends and other benefits, including salary and |
| The applicable law establishes the default relationship | | | | directors’ fees. |
| between the shareholders, and their relationship with | | | | - Imposing restrictions competing with the company. |
| the company. In the absence of a supplementary | | | | - Preventing shareholders from poaching customers or |
| contract, the applicable law will define those | | | | staff. |
| relationships. | | | | When should I enter into a Shareholders Agreement? |
| The purpose of a shareholders agreement is to | | | | If the shareholders of a company choose to enter into |
| amend the default relationship established by the | | | | a shareholders agreement, they do not have to do so |
| applicable law. For example, by providing minority | | | | prior to forming their company, or immediately after the |
| holders with additional rights, by inserting restrictions | | | | company is formed. It can be entered into at any |
| and procedures relating to the transfer of shares, or | | | | time. |
| by controlling company’s the finances. | | | | However, bear in mind that the benefits of entering into |
| It is important to note that there are certain aspects of | | | | such an agreement are obviously only available once it |
| the default relationship which can be amended by | | | | has been entered into. For example, if a shareholder |
| entering into an agreement, and that certain other | | | | transfers their shares, or a conflict arises, before an |
| aspects cannot. Great care is required when drafting | | | | agreement has been entered into, then it is likely to be |
| such an agreement to ensure that the amendments to | | | | too late to negotiate the terms of that agreement. |
| the relationship do not infringe the applicable law. | | | | With this in mind, if the shareholders of a company |
| Do I need one? | | | | choose to enter into a shareholders agreement, it is |
| As stated above, there is no legal requirement to enter | | | | advisable that they do so at the same time as the |
| into a shareholders agreement. | | | | company is incorporated, or as soon as possible |
| However, altering the default legal relationship between | | | | thereafter. |
| the shareholders and the company, and adding | | | | Disclaimer: The information provided on this article is |
| relevant additional provisions, can be invaluable in | | | | intended as a general guide only. It is not exhaustive or |
| protecting your investment in the business. Entering | | | | tailored to your individual circumstances. Please |
| into such an agreement can also avoid conflict | | | | contact Legal Clarity if you require specific advice or |
| between the parties, as well as helping to resolve any | | | | for further information. |