Shareholders’ agreements: Everything you need to know - Kuits Solicitors Manchester
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Shareholders’ agreements: Everything you need to know

Shareholders’ agreements: Everything you need to know

05 Aug 2019

We understand that it can be a struggle to find time to get your company’s housekeeping straight. In particular, it’s not always obvious why it’s worth putting in place a shareholders’ agreement.

If your company is a private company limited by shares, ensuring that all shareholders are happy from the outset with their protections and the management of the company is a sensible move. This is what a shareholders agreement seeks to do.

What is a Shareholders’ Agreement?

It is a contract entered into between the shareholders of the company, and often the company too, with the aim of regulating its management whilst also providing protection to the shareholders. The most common provisions to be covered in a shareholders’ agreement are:

  • rights attaching to shares;
  • transfer of shares;
  • valuation of shares;
  • non-compete and confidentiality obligations;
  • dividend policies; and
  • preventing/resolving deadlock.

Advantages of a Shareholders’ Agreement

There are many advantages of having a shareholders agreements in place and in short, there are no disadvantages to having one. Our top reasons for putting a shareholders’ agreement in place are:

1. Confidentiality: It doesn’t need to be registered at Companies House.

2. Flexibility: It provides a good opportunity to cater for the individual needs of the shareholders and the company; you can capture the nuances of the business relationships involved.

3. Protection: There are a number of other protections available for both majority and minority shareholders, such as:

a. Transfers: Often shareholders would like the shares being sold to be offered to the other shareholders on a first refusal basis before they can be transferred to a third party. There may also be circumstances in which shareholders should be required to sell their shares to the other shareholders.

b. Information rights, so shareholders can access financial information they would not otherwise have access to in order to monitor their investment;

c. Reserved matters, certain decisions cannot be made without “shareholder consent”; this could be unanimity or just certain of the shareholders;

d. Drag and tag along, if the majority of shareholders want to sell their shares in the company to a third party they can compel the minority to sell too, so the minority cannot frustrate a sale. Similarly, the minority can “tag along” and join in on a sale to a third party; and

e. Dividends: The dividend policy can be flexible so that different amounts can be paid to different classes of shares or can be paid to one or more classes of shares to the exclusion of others.

4. Avoid disputes: If shareholders decide at the start of a relationship how certain matters should be resolved, this tends to avoid disputes arising in the future.

These are just a few of the many reasons to have a shareholders’ agreement and overall, having a robust shareholders’ agreement is an important way to seek to ensure stability in the business and protect and enhance the value of your company for the future.

The dynamics and needs of a company change over time and it is important to keep the shareholders’ agreement under review and any new shareholder in the company should sign up to the agreement.

If you are interested in a shareholders agreement, or need expert advice in respect of company governance, please contact Kuits corporate department on 0161 832 3434 or contact us.

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