Directors deal with the day to day running of a company, whereas few decisions are referred back to shareholders for approval unless specifically outlined in the company’s articles of association or the Companies Act 2006.
A shareholders’ agreement works in conjunction with the articles with one key difference; it is a private agreement between the parties who enter into it and is therefore not available to the general public.
The agreement is there to regulate the conduct of the shareholders who are party to it in relation to how they act within the company.
Each shareholder and company is different and therefore each shareholders’ agreement will be different. There are a few key areas on which decisions will need to be made and every shareholder should take these into consideration when entering into this agreement.
There are a number of things to think about here and here is a non-exhaustive list:
Depending upon the set-up of the company, are any shareholders to be given specific rights to appoint a director? This could be, for example, where a shareholder has invested into the company and has no day to day responsibility to run the company. Such a director may want the ability to ‘step in’ to protect their investment should the need arise.
The shareholders may want to take certain decisions out of the control of the directors by only allowing those decisions to be made with ‘shareholder consent’. This could include, for example, imposing restrictions on spending.
There is no requirement for the shareholders of a company to enter into a shareholders’ agreement. Where there is more than one shareholder, it is usually wise to do so as soon as a company is incorporated as the agreement can provide protection for all parties, outline the expectation of how the company is to be run and provide a way to minimise any potential business disputes.
In some circumstances, shareholders rely on the closeness of relationships between each other and this can be problematic if things turn sour. Without adequate dispute resolution mechanisms for example, this could cause unanticipated disruption for a company.
There are many other matters to consider including (as a non-exhaustive list):
This introduction to shareholders’ agreements is intended to provide you, the reader, with information and does not replace the need for legal advice tailored to suit your business needs.
Appropriate care should be taken when preparing a shareholders’ agreement and our experts are here to guide you through your options and what is best for you in your individual circumstances whether you are a shareholder or a company.
If you would like to discuss the contents of this blog or have any related queries, please do not hesitate to contact our business law team on 0116 266 5394 or contact Jade Price direct by email at firstname.lastname@example.org.Talk to our legal team
The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact one of our lawyers who will be happy and able to advise you on your own particular circumstances.