Shareholder’s Agreement: What Is It and Why You Ought to Have One
Ultimately a shareholders agreement is a written contract which sets out and governs the relationship between the shareholders of a company. The agreement enables shareholders to define each of their respective roles and duties towards the company. The purpose of this is to provide clarity in the event of future disputes. The main advantage of having a shareholder agreement is confidentiality. Unlike the Articles of Association, shareholder agreements do not need to be filed at Companies House and therefore can remain confidential as they cannot be obtained by members of the public.
Confidentiality will be particularly important where shareholders wish to set out in writing, certain delicate matters which members wish to remain private. Another point is that the Articles of Association only govern membership rights and so a shareholders agreement would be useful where members wish to agree on a matter which is unrelated to their membership rights.
A shareholders’ agreement is also, legally speaking, more binding than the Articles. The Articles may be changed or amended at any time by members entering into a special resolution. However a shareholders’ agreement required the consent of all parties to the contract in order for the agreement to be altered. This provides an extra degree of protection where those who enter into a shareholders’ agreement, are concerned, as any attempt to vary the agreement without unanimous consent of the parties, will inevitably provide a remedy and action for breach of contract.
Some of the typical provisions contained in a shareholders’ agreement, which you may wish to consider, include:
- An undertaking that the company will not alter or modify provisions of memorandum of articles, or will not do so without the consent of all parties
- Remuneration of directors
- The requirement of unanimity for major decisions
- Agreements relating to the dividend policy
If you would like any further advice on the content of Shareholder agreements or in general, please contact our Commercial Department.
Raj Dhokia: email@example.com