Why have a Shareholders Agreement- 5 good reasons!

A Shareholders Agreement can help to regulate the relationship between the business and the shareholders and helps to prevent confusion and disputes. Set out below are “5 good reasons” why you should seriously consider a Shareholders Agreement:

1)      Day to day affairs
 The board of directors manages the day to day running of a company but occasionally shareholders will feel that certain important decisions should be made at shareholder level. A Shareholders Agreement will allow shareholders to approve fundamental decisions.

2)      Transferring and valuing shares
 An agreement can detail the procedure for selling and transferring shares. Often the shareholders and the company will be offered first refusal of shares to be sold. This is useful for preventing competitors or persons outside the company from acquiring shares and can allow family run companies to ensure shares remain within the family. A Shareholders Agreement can also detail how the shares should be valued should a shareholder wish to transfer or sell their shares.

3)      Protection for minority shareholders

 Ensuring that interests of the minority shareholders are protected is important. This can be achieved by providing within an agreement that fundamental decisions require the unanimous consent of all shareholders ensuring that the balance of power is redressed and minority shareholders are not prejudiced.
4)      Preventing fall-outs
Disagreements may occur between shareholders, even if at the outset this is difficult to foresee. A Shareholders Agreement can provide a structure to resolve these disputes without having to resort to litigation which could save time and cost in the long run.
5)      What happens if a shareholder ceases to work with the Company or dies?
 If a shareholder agreement is not in place it could mean that when an individual leaves the Company they could retain their shares which may not be desirable, especially if they go to a competitor. A similar problem could arise if a shareholder dies, becomes mentally incapacitated or becomes bankrupt. A Shareholders Agreement could provide the Company and/or other shareholders with an option to acquire such shares preventing the shares falling into the hands of an unknown third party.

Unlike other company documents a Shareholders Agreement is a contractual document that remains private and confidential between the parties. Once in place the agreement can only be amended with the consent of all of the shareholders providing future protection for minority shareholders. A Shareholders Agreement provides security not only for the shareholders but also for the company making it an essential document for any company with multiple shareholders.

For further advice or assistance on commercial matters contact our Commercial Law Specialist Umberto Vietri on 01535 613674 or at umberto.vietri@awbclaw.co.uk
Umberto Vietri
Partner and Commercial Lawyer
Tel: (01535) 613674