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In the majority of owner-managed companies, promoting the business and ultimately making a profit is the primary intention and focus of all owners. It is, however, just as important to ensure that its structure is carefully considered so that management and shareholder roles are identified, clearly set out and committed to. This is especially the case as shareholders do not have any duties or obligations to a company or its business under law. A shareholders’ agreement will set out the rules and regulations upon which the shareholders, the company and its directors are to be bound by.
With a shareholders’ agreement, all parties will have a better understanding of their rights and obligations. Some of these will be obligations as to how they must act or behave in their operation of the business and others will be restrictions on what they can or cannot do without appropriate approvals.
During the life cycle of a company, it will go through many changes which will put a lot of stress on the relationship between its shareholders. It is not uncommon for shareholders to fail to agree on matters (causing a deadlock) or fall out completely. In such circumstances, the shareholders’ agreement will define the correct exit route for the circumstance (including resolution process) so that the company and its business are not jeopardised.
It is also recommended that the articles of association are amended so that the documents forming the constitution of the company (its articles of association and shareholders’ agreement) complement each other. A company’s articles of association are a public document (they are filed at Companies House) and so some of the more personal or specific terms (such as post-termination restrictions) are better suited to the shareholders’ agreement, which will remain private between the parties.
A shareholders’ agreement is an agreement between all the shareholders of a company.
It is an essential and integral document to any shareholder relationship which allows shareholders to regulate their relationship with each other, the company and its directors.
It provides clarity and direction for all by setting out the framework as to how the company is to be governed and operated. It also helps to mitigate against costly and potentially damaging shareholder disputes, should they arise in the future.
Whilst a company’s standard constitution and the Companies Act 2006 provide some protection for shareholders, it is very limited, and relying on it alone could have a random or unpredictable outcome.
Similarly, Table A of the Companies Act 1985 and the Model Articles within the Companies Act 2006 import default provisions, however, not all of these provisions will be suitable and/or compatible with the wishes of the owners.
For example, standard articles do not permit a compulsory transfer of shares held by a shareholder in the event that such shareholder commits a breach of a shareholders’ agreement or the articles of association.
The circumstances in which you may need to consider a shareholders’ agreement with your fellow shareholders are:
Whilst a company’s standard constitution and the Companies Act 2006 provide some protection for shareholders, it is very limited, and relying on it alone could have a random or unpredictable outcome. Similarly, Table A of the Companies Act 1985 and the Model Articles within the Companies Act 2006 import default provisions, however, not all of these provisions will be suitable and/or compatible with the wishes of the owners.
Even if you have already established your business, it is not too late to put the necessary protections in place, to ensure that shareholders are protected in the future. You can look to enter into a suitable shareholders’ agreement and articles of association at any time.
It is also vitally important that such arrangements are reviewed regularly (and especially when shareholdings are varied) to ensure that they remain suitable.
Set out below are a number of scenario questions which can be easily dealt with and answered in a shareholders’ agreement. These scenarios would potentially cause major concern and disruption to you and your business without a shareholders’ agreement in place.
A shareholders’ agreement will provide clarity and direction for all by setting out the framework as to how your company is to be governed and operated in the future and how issues or disputes such as these may be resolved.
Our specialist Corporate Commercial Solicitors will prepare you a suite of documents, which will include your shareholders’ agreement, articles of association and directors’ service contracts.
Each of these documents need to complement the others, ensuring that you have continuity as well as consistent and clear terms.
We will help you to address all relevant points, including the following:
If you do not have a shareholders’ agreement and a dispute has already arisen, we have a specialist Commercial Litigation Team who, together with our Corporate Commercial Team, will be able to assist you in resolving the matter.
As an all services law firm, we are able to deliver a complete service with support from our Property, Employment, Commercial, Dispute Resolution and Private Client teams. We strive to ensure our clients achieve the best legal outcome for their circumstances. We provide transparent, clear advice to make sure you understand the complete process.
As standard practice, before undertaking any piece of work, we will provide clear guidance and an estimate of the costs involved. Following this, we will make sure we provide on-going communication to share costs updates on a regular basis. Additionally, we work with our clients to discuss other pricing models where necessary (for example, fixed fees and retainer arrangements) if that is helpful to you.
Home-grown or recruited from national, regional or City firms. Our specialists are experts in their fields and respected by their peers.
Mohammed Akeel Latif
Akeel is a Partner and Head of the Corporate Commercial department at Myerson
Scott is a Partner in our Corporate and Commercial department
Carla is a Partner in our Corporate Commercial department
Laura is a Solicitor in our Corporate Commercial department
Terry is a Senior Solicitor in our Corporate Commercial department