Shareholders' Agreements

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Shareholders' Agreements

Shareholders' Agreements

The relationship between shareholders can be as varied as the shareholders themselves.

Some shareholder-relationships are happily unbalanced, with one party happy to fly the plane while her co-shareholders, equally happy, sit in first class quaffing champagne. Others are more like a sports’ team, with everyone allocated to their specific and equal roles, shouting support (and occasional abuse) at one another.

Whatever your shareholder-relationship, it is likely that a Shareholders’ Agreement is going to benefit your business. A well-drafted Shareholders’ Agreement will not only set out the desired shareholder-relationship in writing (and we lawyers love stuff in writing – the words ‘but he promised me’ do not always hold up in court), but it also prevents fall-out. This is because Shareholders’ Agreements do two important things.

First, it makes the shareholders think, in advance, about what they expect from each other. A Shareholders’ Agreement requires the parties to think about how decisions will be made at both board and shareholder level, as well as what rights the shareholders have to prevent the other(s) from making certain decisions. For example, if you don’t want your generous fellow shareholder loaning company money to anyone who asks, you can put a clause in the Shareholders’ Agreement preventing the giving of loans without the consent of all shareholders (or a percentage of shareholders).

Second, should there be a disagreement between the shareholders, they can defer to the provisions of the Shareholders’ Agreement before it all goes cold and someone threatens the nuke button. For instance, if the company has 2 shareholders, there is the possibility that they will disagree on an important matter. The resulting deadlock can paralyse the business. But if they have a good Shareholders’ Agreement, it will set out a process (agreed beforehand) for resolution including, if it comes to it, a mechanism whereby one party gets the company and the other party gets a fair price for letting the other one get the company. Either way, the business can move forward and the value of the hard work of both parties is not lost.

There are also other benefits to a good Shareholders’ Agreement. They can protect minority, equal and majority shareholders. And once drafted, the shareholders can, with peace of mind, get back to what they do best: whether that be flying the plane, quaffing champagne or shouting obscenities at their team-mates.

If you would like to find out more about Shareholders’ Agreement, please contact Lucy Hartslief or you can give us a call 0345 070 6000.