HCR Law Events

6 February 2017

Why should my company have a shareholders agreement?

A shareholders agreement is a funny document. Ideally it is one of those, which once signed, you lock away in the company safe and forget about. However, this belies the importance a properly drafted shareholders agreement can have to a company.

Unlike the articles of association of a company, a shareholders agreement is a private agreement between the shareholders of the company which sets out the rules upon which the directors and shareholders carry on the business of the company. This means a shareholders agreement is not a matter of public record and its contents remain confidential between its parties.

A bespoke shareholders agreement is a versatile form of agreement and can be used in many ways. By way of example it can be used to:

  • Try to settle disputes early by codifying procedures to follow when such an event arises;
  • Set out the rights attaching to particular classes of shares;
  • Control the dividend policy of the Company;
  • Set parameters with regard to directors’ decision making powers before they must seek shareholder approval;
  • Create protections for minority shareholders, stopping a controlling shareholder from taking advantage of their position;
  • Put in place procedures to deal with a shareholder’s shares should he/she die, become bankrupt/insolvent or leaves the company;
  • Control how shares are transferred;
  • Dictate what happens in the event of a proposed offer to buy the shares or assets of the company; or
  • Place restrictions on shareholders, to prevent them competing with the company if ever they leave.

Whether you are a small company with two shareholders, or a larger company with many shareholders, having a shareholders agreement in place could help prevent a costly dispute from arising or provide guidance as to what the directors of a company must do should certain situations arise.

The benefits a well drafted shareholders agreement brings certainly outweighs the initial costs of putting one in place!

Share this article on social media

About the Author
Peter N. Raybould, Senior Associate

view my profile email me

Want news direct to you?

sign up

Drop-in sessions for In-House Lawyers

find out more

Got a question?

Send us an email

Newsletter HCR featured image

Stay up to date

with our recent news