• Company law basics
  • What is a limited company?
  • Types of companies
  • Limited liability
  • Does a business have to be a limited company?
  • Advantages and disadvantages of running a business as a company?
  • When must a company be registered for VAT?
  • What does it cost to set up a company?
  • What information must a company send to Companies House?
  • Introduction to articles
  • Registered office
  • Changing the registered office
  • Finding a company's registered office
  • Can a company do everything?
  • What are a company's objects?
  • Company seals
  • Companies House
  • Information required on company notepaper
  • Information required on websites, emails and faxes
  • Annual return
  • Company accounts
  • Incorporating an existing business
  • Ready made companies
  • Can a company be moved from one part of the United Kingdom to another?
• Companies legislation
  • Companies Legislation
  • Companies Act 2006 Introduction
  • Accounts, audit and annual returns SIs
  • Articles of Association SIs
  • Company charges SIs
  • Companies House SIs
  • Community Interest Companies SIs
  • Directors SIs
  • Company forms SIs
  • General meeting - shareholders' rights SIs
  • Minority protection SIs
  • Company and business names SIs
  • Overseas companies SIs
  • Political donations SIs
  • Share capital SIs
  • Statutory registers and other records SIs
  • Trading disclosures SIs
  • Companies Legislation before the Companies Act 2006
• Types of companies
  • Types of companies
  • Companies limited by guarantee
  • Community Interest Companies (CIC)
  • Property management companies
  • Dormant companies
  • Converting a company from one type to another
• Registering a company
• Company and business names
  • Company names
  • Changing a company's name
  • Protecting a company's name
  • Passing off
  • Trade marks
  • Trade mark registration
  • Trade mark categories of goods and services
  • What does it cost to register a trade mark?
• Articles of association
  • Introduction to articles
  • Model Articles
  • Table A
  • Updating articles
  • What is a general commercial company?
• Directors
  • What is the difference between shareholders and directors?
  • Directors
  • Number of Directors
  • Appointment of Directors
  • Resignation of directors
  • Removal of a director from office
  • Who can be a director?
  • Directors' service addresses
  • Are directors entitled to be paid?
  • Directors as employees
  • Directors' powers
  • Directors' duties
  • Legal position of a managing director
  • Loans to directors
  • Conflicts of Interest
  • Company secretary
  • Board meetings
  • Appointing a chairman
  • Quorum at board meetings
• Shares
  • What is a statement of capital?
  • Shares - an introduction
  • Authorised capital
  • How many shares should a company have?
  • Classes of shares
  • Share certificates
  • Dividends
  • What voting rights do shares have?
  • How do people get shares in a company?
  • Issuing shares
  • Pre-emptive rights
  • Transferring shares
  • What happens if a shareholder dies?
  • How much must a company charge for its shares?
  • Issuing shares for consideration other than cash
  • Can a child own shares?
  • Can a company buy its own shares?
• Shareholders
  • What is the difference between shareholders and directors?
  • What rights does a shareholder have?
  • General meetings
  • Must a company hold general meetings?
  • Calling general meetings
  • Who is entitled to attend general meetings?
  • What is the difference between board meetings and general meetings?
  • Proxies
  • Minutes of members' and directors' decisions
  • Types of resolutions
  • Appointing a chairman
  • Quorum at general meetings
• Shareholders' agreements
• Statutory registers
• Company borrowing and debentures
  • Company borrowing
  • Debentures
  • Fixed and floating charges
  • Registering charges
• Partnerships
  • Partnerships SIs
  • Partnership Act 1890
• LLPs
  • Limited Liability Partnerships (LLPs)
  • Limited Liability Partnerships (LLPs) SIs

Shareholders' agreements

• What is a shareholders' agreement?
• What does a shareholders' agreement do?
• What are typical provisions to protect shareholders' interests?
• What provisions are often included to give the shareholder a say in management?
• What about share transfers?

What is a shareholders' agreement?
A shareholder's agreement is a contract between the shareholders of a company in which they agree how the company will be run. They all agree that they will use their voting power in the company to ensure that the terms of the agreement are complied with for as long as they are all shareholders.
When should a shareholders' agreement be used?
Circumstances vary, but a shareholders' agreement should always be considered when there are between two and, say, 20 shareholders in a company.

What does a shareholders' agreement do?
Shareholder agreements vary widely, but the typical agreement is designed to protect all the parties against a majority using their voting power to the detriment of the others. Without such an agreement, a company is under the control of those who hold a majority of the votes at a directors' or shareholders' meeting. Majority decisions are all very well for day to day matters, but where something goes to the heart of running the company, or materially affects the interests of individual shareholders, most shareholders want to have their say and to be able to block a major change. A shareholders' agreement can specify decisions which require all, or certain shareholders, to agree.

What are typical provisions to protect shareholders' interests?
Unless constrained by a shareholders' agreement, shareholders with a simple majority of votes (e.g. two out of three equal shareholders) have very wide powers under company law. Without requiring any consent from the other shareholders, they can appoint new directors (perhaps their friends or family members), remove any director (such as one of the other shareholders), vote to pay themselves salaries or fees which other shareholders or directors do not get or issue more shares (so diluting existing shareholders' ownership of the company). These are only examples. A shareholders' agreement would usually constrain these powers so that such things can only be done with the consent of all the parties or, sometimes, a specified majority of them.

What provisions may be included to give the shareholder a say in management?
Being a shareholder does not even confer the right to be a director and that is usually one of the provisions of a shareholders' agreement. Most agreements will go further by providing a list of management decisions that require the agreement of all (or a specified percentage of) the directors. Circumstances vary, but typical provisions relate to matters that are outside the usual course of the business, such as changing the nature of the business, entering into unusual contracts or contracts in which a director is personally interested, extending the company's overdraft (which often all directors have personally guaranteed), borrowing above agreed limits, employing or dismissing staff in unusual circumstances or bringing or defending legal proceedings.

What about share transfers?
One of the most important areas is the rules that apply when a shareholder wants to transfer his or her shares, and what can happen to them when the shareholder dies. These can be set out either in the articles or in a shareholders' agreement. Many companies' articles give the directors a discretion to reject any transfer by a majority decision. There are many alternative provisions, such as pre-emption provisions (giving the other shareholders a first option to buy the shares), free transfers to members of the shareholder's family or for all transfers to require the consent of all shareholders.

Obtaining a shareholders' agreement
Most shareholders' agreements are drawn up by solicitors. The complexity of the agreement and the cost involved can vary widely. Some include detailed financial arrangements and complex provisions covering a whole range of different eventualities, especially where the agreement is imposed by a professional investor when putting substantial money into an enterprise.
In simpler cases, involving a small number of participants in a typical private company, the issues are usually much the same in each case and the cost need not be prohibitive.

Company Law Solutions provide a shareholders' agreement service ideally suited to the smaller company. Cost can vary according to the complexity of the agreement. Most agreements are competitively priced at £250.00 plus VAT. This is the total charge in most cases. If complex additional terms have to be drafted, there may be additional cost, but we would always advise as to the actual cost before proceeding, and the total is very unlikely to exceed £500 plus VAT.