A shareholder agreement is an agreement between shareholders of a company. Depending on the nature of the agreement, it can be between all or some of the shareholders.
A shareholder’s agreement aims to protect each shareholder’s investment in the company and establish an honest relationship between each party. The agreement will only apply to those shareholders who are party to the agreement. The agreement would not be enforceable against the company unless it is a party to it; it affects the rights of future shareholders unless those future shareholders choose to subscribe to its terms.
What is covered?
Each shareholder agreement will slightly differ, depending on the number of shareholders involved, the nature of the company and the type of investment. Always consult a trusted solicitor when drafting your shareholder’s agreement to ensure that it is legally binding and appropriate for the concerned company.
A standard shareholder’s agreement will include:
- The rights and obligations of the shareholders
- Regulation of the sales and shares of the company
- Descriptions of how the company is to be run
- An element of protection for minority shareholders and the company
- Outline how important decisions are to be made
- Since the agreement is bespoke, you can include anything that you and your company deem relevant, and this will differ depending on the business type, size and structure.
Legalities of shareholder agreements
Having a shareholder’s agreement is not a legal requirement; however, we strongly recommend having one to avoid future potential issues within your company. Without one, your financial investment as a shareholder could be at risk.
The circumstances where a shareholder’s agreement may be appropriate, include:
- where there is a small number of shareholders (possibly also holding the office of directors) where there is a wish to make unanimous decisions in relation to the business;
- where there are shareholders who do wish to become directors but wish to have some say in the affairs of the company by entering into a shareholders agreement with those shareholders who also act as directors;
- where one shareholder has invested money in the company and wishes to protect their investment.
A common agreement amongst the shareholders can help demonstrate stability and guides how issues will be dealt with daily.
Business Solicitors Gloucester
At Langley Wellington LLP Solicitors, our team of commercially minded business solicitors understand how daunting starting up or expanding your business is. We know you want to protect your investment in the company, so having a comprehensive and bespoke shareholder’s agreement in place is essential.
This blog post is not intended to be taken as advice or acted upon. If you are seeking legal advice, please get in touch with our team of solicitors