What is a shareholders’ agreement?

Two shareholders giving each other a high five in agreement

A shareholders’ agreement is an agreement between some or all of a company’s shareholders. It is a way to protect the shareholders’ interests and provide for eventualities.  

Why should you have one? 

A shareholders’ agreement can manage the relationship between the shareholders, set guidelines for the company’s management, and regulate the ownership and the protection of shares.  

The absence of such an agreement opens up potential for disagreements amongst the shareholders or between shareholders and directors. Even if the company was set up together with people you trust, e.g. friends or family, a shareholders’ agreement should be considered and can mitigate risks. 

Potential risks include: 

  • No clear exit strategy when problems arise 
  • Shares being freely transferrable to third parties without share transfer restrictions  
  • Directors being able to make decisions without shareholder consent 
  • Shareholders leaving company employment, e.g. to work for a competitor, could keep their shares, their benefits and their right to vote on company matters. 

What is considered in a shareholders’ agreement? 

A shareholders’ agreement will mainly include plans tailored to the company in question. This could include plans on, for example, the company’s finances, the company’s management, the dividend policy, share transfer restrictions, or deadlock situations. 

Minority or equal shareholdings 

Many shareholders’ agreements look to protect both minority shareholders and equal shareholders. A minority shareholder is any person who holds less than 50% of a company’s shares. Equal shareholders are shareholders who each hold the same amount of a company’s shares. A shareholders’ agreement could, for example, prevent a minority shareholder from being removed from an executive position in the company by majority vote.  

Majority shareholdings 

However, shareholders’ agreements do not only have to seek to protect the minority shareholders. In some cases, the agreements are written to protect the majority shareholder’s interests. For example, without a shareholders’ agreement a minority shareholder might be able to block a sale which would be beneficial to the company.  

At AWB Charlesworth Solicitors we have extensive experience in commercial law. If you need legal advice at any stage, contact Umberto Vietri on 01274 352056 or email umberto.vietri@awbclaw.co.uk.

22 May 2024

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External links of interest

Institute of Directors: shareholders’ agreement

CBI

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