GUIDANCE ON YOUR SHAREHOLDERS AGREEMENT
Why do you need a shareholders agreement?
For limited companies, when it comes to making decisions, Company Law imposes certain rules. This means that if you own more than 50% of the shares you can force through decisions at a company meeting, even when everyone else disagrees. With more than 75% of the shares you control the company outright. You can veto the decisions of all other shareholders. This is why your company may need a shareholders agreement.
These rules do not suit other business situations. Where you have two or more owners holding equal shares, a group of owners with varying amounts of capital or where some are working directors and some are not, the rules don’t work. So where you are all working together then a better set or rules are needed.
A shareholders agreement is normally entered into by all or some of the owners of a company. It controls the relationship between the shareholders, the management of the company, ownership of the shares and can protect shareholders. They also govern the way in which the company is run.
Shareholders agreements can define how a business makes decisions for the benefit of all owners and is recommended where:
- A number of owners want to reach a fair outcome
- Some owners may want to be able to influence key decisions
- Some shareholders may not involced in day to day operations
Many agreements seek to deal with the uncertainties of death, disability and disagreement. They also cover other areas for example, retirement, buy back of shares or variations perhaps dependent on the valuation a of sale.
As every agreement is unique to the set of shareholders, legal advice should be taken. It is possible for shareholders to draft their own agreements using online forms. But, you should seek legal advice to help you complete the drafting of your agreement.
A well drawn up and comprehensive agreement will protect minority interests, clarify who makes decisions, empowers all participants, acts as a record of agreement, can help keep your affairs in order and can offer flexibility when situations such as retirement, death, disability and disagreements arise.
Like all contracts, they can be seen as an unnecessary expense at the start of process, but can be extremely useful when future events mean that clarification is needed.
Key areas for any shareholder agreement
As each situation will be different it is impossible to cover all areas to be covered. But the following will help you collect the thoughts of all shareholders as you draw up an agreement.
- 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, day to day operating decisions and potential variations depending on circumstances
- 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
- “Good leaver” / “Bad leaver” provisions
- 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
A shareholders agreement is an essential document for any limited company and an equitably drafted agreement should provide comfort to all parties to the agreement.
We can help you to draft an agreement. Where you have an agreement if circumstances change you may wish to revisit your existing agreement. Including if 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. We can help with share and company valuations and putting the shareholders wishes into an agreement with a local solicitor.
Call Brian Russell on 01661 872004 for an initial discussion on your needs for a Shareholders Agreement.