If you share ownership of a company with others it is always useful and in many cases essential that you protect your position with a Shareholder Agreement.

What is a Shareholder Agreement?

A Shareholder Agreement is a private contract in writing between the shareholders of a company and, unlike the Articles of Association, it does not have to be filed at Companies House and can then be read by anyone.

What can a Shareholder Agreement do?

It can identify:

• How a new shareholder can join the company.
• A consistent procedure for all shareholders to protect their rights and identify their responsibilities in the company.
• How shares are bought and sold and when and by whom, including, if you wish, those occasions when shares must be sold by an unwilling shareholder.
• What happens when new shares can be issued by the company.
• How your shareholding is to be valued when you sell and lay out a dispute resolution process if the value cannot be agreed.
• Those decisions made in the running of the company that can only be taken if all the Shareholders agree.
• How the powers of any directors of the company who are not an owner are to be exercised for the benefit of the shareholders and the company.
• What happens if a shareholder falls ill and cannot participate in an owner-managed business anymore.
• How decisions about the company can be made smoothly without undue administration but still keeping the shareholders informed.
• How a deadlock on a decision to run the company can be resolved. This is most important, as without such a procedure  a deadlock can seriously damage the business and sometimes cause its demise. A simple procedure in the shareholder agreement can help to allow the owners to find a way out.

Do I need a Shareholder Agreement now or later?

If you start a business with others and purchase an 'off the shelf' company you may think a Shareholder agreement is an unnecessary luxury that can wait until profits appear. A decision delayed can often be neglected for ever and the benefits of such an agreement are then unavailable at the very moment it is needed: when owners fall out or want to sell.

You can create a Shareholder Agreement at anytime during the life of the company. You can review it as your needs and those of the business change and can amend it by agreement. You can even make it exist for a fixed period of time, such as three years, and then it has to be renegotiated.

If you think a Shareholder Agreement would benefit you or would like to review one already in place, contact one of our commercial solicitors at our Salisbury, Andover, Verwood, or Amesbury offices today.