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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.

What is a Shareholders’ Agreement?

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.

Who Should Enter into a Shareholders’ Agreement?

The circumstances in which you may need to consider a shareholders’ agreement with your fellow shareholders are:

  • If your business has two or more shareholders;
  • If you are setting up a new company or starting a new business with others;
  • If you are buying a business with others in a new company;
  • If you are acquiring shares in an existing trading company (whether new shares or from another shareholder); or
  • If you are selling shares or transferring shares to others in your company, whilst retaining a shareholding.
  • A shareholders’ agreement will ensure that your investment, interest and, where appropriate, control of your business is protected and the business can be run in a fair and profitable manner.

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.

What Kind of Scenarios Does a Shareholders’ Agreement Regulate?

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.

  • What happens if a shareholder wishes to sell his/her shares to a third party who you do not know or trust or to someone who wishes to change the direction of your business?
  • What happens if the majority shareholders wish to sell their shares, but a minority shareholder does not?
  • What happens if the shareholders fall out or have a disagreement?
  • What happens if a shareholder dies?
  • What happens if a shareholder wishes to set up a competing business?
  • If you do not have day to day involvement in your company, do you want a veto on certain decisions?

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.

Specialist Advice For Business Owners

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:

  • The proposed nature of the business
  • How the company is going to be run and how decisions will be made
  • Drag and tag along provisions
  • The rights and obligations of shareholders
  • How any future contributions will be made
  • The procedure for the issue and transfer of shares including pre-emption rights
  • Circumstances under which the company may be sold
  • The appointment and removal of directors
  • Key roles and responsibilities
  • Dispute resolution procedures
  • Minority shareholder protections
  • The payment of dividends
  • Non-competition obligations
  • What happens upon a shareholder leaving the company (for example on retirement or death)
  • Remedies for breach of the agreement (for example, deemed transfer of shares) and appropriate good/bad leaver provisions
  • Indemnities between shareholders and/or apportionment of liability

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.

 

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Our Approach & Our Experience

We provide practical, commercial and coherent advice and are able to deliver a complete service with support from our Property, Employment, Commercial, Dispute Resolution and Private Client teams.

Our ethos is to provide our clients with an alternative to the major regional and national firms by offering high quality legal advice from highly experienced, specialist solicitors, but on a much more cost-effective basis.

We work closely with our clients to ensure that we meet their expectations both in terms of their objectives for a particular piece of work and in relation to costs. We are easy to deal with, clear in our advice and understand that a common sense approach is often required. As standard practice, we give our clients an estimate of the costs involved in undertaking any piece of work at the outset. We can then provide costs updates on a regular basis. In addition, where appropriate, we are happy to discuss other pricing models (for example, fixed fees and retainer arrangements) if that is helpful to you.

Our team of Corporate Solicitors are ranked Top Tier - Tier 1 by the independent Legal 500 directory.  In addition, Partners in our team are recommended by the Legal 500.  Therefore, you can be reassured that you will deal with some of the best Commercial Solicitors in the country.

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Our Promise & Core Values

Our Promise

The Myerson Promise - Our Partners, team of lawyers and support staff commit to giving our clients more.

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To always give you clear, jargon-free advice.
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To be completely transparent about our fees from the outset.
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Progress every matter in an efficient and timely matter.

Our Core Values

Our core values are at the centre of everything we do.

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We are always professional but ensure that we are friendly and approachable.
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We are determined and enthusiastic about supporting our clients and our people.
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We willingly take responsibility and can be relied on to be commercial, effective and efficient.

Meet Our Specialists

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

Mohammed Akeel Latif

Akeel is a Partner and Head of the Corporate Commercial department at Myerson

Andrew Brown

Andrew Brown

Andrew is a Partner in our Corporate Commercial department

Carla Murray

Carla Murray

Carla is a Partner in our Corporate Commercial department

Scott Sands

Scott Sands

Scott is a Partner in our Corporate and Commercial department

Testimonials

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