If you share ownership of a Company with others it is always useful, and in many cases essential, to protect your position with a Shareholder Agreement.
What is a Shareholders Agreement?
A Shareholders 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 it do?
It can:
- Control how a new shareholder can join the Company.
- Provide a consistent procedure for all shareholders to protect their rights and identify their responsibilities in the Company.
- Specify 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.
- Identify what happens when new shares can be issued by the Company.
- Lay out how your shareholding is to be valued when you sell, and a dispute resolution process if the value cannot be agreed.
- Identify those decisions made in the running of the Company that can only be taken if all the Shareholders agree.
- Regulate the powers of any Company Directors who are not an owner. how their powers are to be exercised for the benefit of the shareholders and the company.
- Specify what happens if a shareholder falls ill and cannot participate in an owner-managed business any more.
- Control how decisions can be made smoothly without undue administration but still keeping the shareholders informed.
- Identify how a deadlock on a decision to run the company can be resolved. 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 one 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 any time 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, e.g. three years, and then it has to be renegotiated.
If you think that a Shareholder Agreement may be of benefit to you or would like to review one already in place please contact Alan Jenner on 01722 422300 or email Alan Jenner. He will be happy to discuss your needs with you.
