It is important for all business owners to understand the value of having a well-drafted shareholders' agreement in place. Whether you are starting a new venture, bringing on an investor, or managing a growing business, a shareholders' agreement can be one of the most important documents your company puts in place.
What is a shareholders' agreement?
A shareholders' agreement is a private contract between all or some of a company's shareholders. Unlike a company's articles of association, which are publicly available at Companies House, a shareholders' agreement is confidential, making it ideally suited to addressing commercially sensitive matters.
Do I really need one?
The short answer is almost certainly, yes. Many companies, particularly in their early stages, rely solely on model articles of association adopted on incorporation. Model articles are non-bespoke and basic in nature, and without a shareholders' agreement, shareholders may find themselves without adequate protections if relationships deteriorate, a shareholder wishes to exit, or a dispute arises over the direction of the business.
What does it typically contain?
A well-drafted shareholders' agreement will usually address:
- Reserved matters requiring a specified threshold of shareholder consent before significant decisions are taken - such as the issue of new shares, changes to share capital, or disposal of key assets. These provisions ensure minority shareholders retain a meaningful say in how the business is run;
- Dispute resolution and deadlock mechanisms, providing a clear process for resolving disputes that might otherwise bring the company's trading activities to a standstill;
- Share transfer provisions, including drag-along and tag-along rights, protecting both majority and minority shareholders in the event of a sale;
- Restrictive covenants, confidentiality, and intellectual property protections; and
- Board composition and governance, including director appointment rights and meeting requirements.
If a party commits a breach, the other parties will likely have a claim for breach of contract and may, in some cases, be entitled to seek remedies including an injunction. We recommend bespoke articles of association are prepared alongside a new shareholders' agreement; as one example of the benefits of this approach, bespoke articles, unlike model articles, can include tailored provisions such as restrictions on share transfers, and a breach of those provisions can give rise to the ability to reverse the consequences of the breach (as opposed to a breach of contract claim under a shareholders' agreement).
Any new shareholders should also be required to sign a deed of adherence upon acquiring their shares, ensuring they are bound by the terms of the existing agreement.
How we can help
In our Corporate team at Trowers & Hamlins, we have extensive experience drafting, reviewing, and negotiating shareholders' agreements and articles of association across a wide range of sectors. Please do not hesitate to get in touch if you would like to discuss how we can assist you.
What is a shareholders' agreement?
A shareholders' agreement is a private contract between all or some of a company's shareholders. Unlike a company's articles of association, which are publicly available at Companies House, a shareholders' agreement is confidential, making it ideally suited to addressing commercially sensitive matters (e.g. shareholder loan terms).
Do I really need one?
The short answer is almost certainly, yes. Many companies, particularly in their early stages, rely solely on model articles of association adopted on incorporation. Model articles are non-bespoke and basic in nature, and without a shareholders' agreement, shareholders may find themselves without adequate protections if relationships deteriorate, a shareholder wishes to exit, or a dispute arises over the direction of the business.
What does it typically contain?
A well-drafted shareholders' agreement will usually address:
- Reserved matters requiring a specified threshold of shareholder consent before significant decisions are taken - such as the issue of new shares, changes to share capital, or disposal of key assets. These provisions ensure minority shareholders retain a meaningful say in how the business is run;
- Dispute resolution and deadlock mechanisms, providing a clear process for resolving disputes that might otherwise bring the company's trading activities to a standstill;
- Share transfer provisions, including drag-along and tag-along rights, protecting both majority and minority shareholders in the event of a sale;
- Restrictive covenants, confidentiality, and intellectual property protections;and
- Board composition and governance, including director appointment rights and meeting requirements.
If a party commits a breach, the other parties will likely have a claim for breach of contract and may, in some cases, be entitled to seek remedies including an injunction. We recommend bespoke articles of association are prepared alongside a new shareholders' agreement; as one example of the benefits of this approach, bespoke articles, unlike model articles, can include tailored provisions such as restrictions on share transfers, and a breach of those provisions can give rise to the ability to reverse the consequences of the breach (as opposed to a breach of contract claim under a shareholders' agreement).
Any new shareholders should also be required to sign a deed of adherence upon acquiring their shares, ensuring they are bound by the terms of the existing agreement.
How we can help
In our Corporate team at Trowers & Hamlins, we have extensive experience drafting, reviewing, and negotiating shareholders' agreements and articles of association across a wide range of sectors. Please do not hesitate to get in touch if you would like to discuss how we can assist you.
