Information on Shareholders' Agreements

A shareholders’ agreement is an agreement between the shareholders of a company and often the company is also a party. The agreement can be between all or some only of the shareholders (for example the holders of a particular class of shares).

The purpose of a shareholder’s agreement is to protect the shareholders’ investment in the company, to establish a fair relationship between the shareholders and to govern how the company is to be run.

The agreement will contain specific, important and practical rules relating to the company and the relationship between the shareholders.  The rules can regulate and establish a framework between the minority and majority shareholders or indeed between equal shareholders – where some consideration will need to be made as to how decisions will be made and what happens where there is not a consensus.

You may consider the following matters in preparing a shareholder’s agreement:

• Issuing shares and transferring shares – including provisions to prevent third parties acquiring shares unless they have been offered to existing shareholders first;
• Tag or drag along provisions which allow for the sale of the whole in the event of a third-party buyer approaching the majority to sell – the minority can literally be dragged along (sell on the same terms as the majority) or tag along on the offer;
• Providing some protection to minority shareholders – perhaps where certain matters should be unanimously agreed;
• Payment of dividends;
• Running the company – including appointing, removing and paying directors, frequency of board meetings, deciding on the company’s business, providing management information to shareholders, banking arrangements and financing the company; and
• Dispute resolution procedures.

Importantly the shareholders agreement is a private document between the parties and its contents need not be filed at Companies House or be in the public domain – unlike a company’s articles of association.  For this reason, it can be common to include more sensitive commercial type provisions in the shareholders agreement rather than the articles of association.

If you or your business require information regarding anything in this blog or generally about your business or any other corporate matter, please call Sarah Ward, head of our corporate team, on 07889 589596 or e-mail Sarah at sward@georgegreen.co.uk for advice and assistance.