Do we really need a shareholder agreement?It is all too easy to see shareholder agreements as being unnecessary and to take the view that you and your fellow shareholders are all ‘grown adults’ and will resolve any disagreements amicably if they arise in the future. This is a very common position to take if setting up in business with people you know. A good deal of company legal advice volume helps bring disagreements under control following disputes where no shareholder agreement was not in place. It is sensible therefore to think of a shareholder agreement like a form of insurance; you may never need it, but if you do, it may be invaluable. Consider that shareholder agreements serve a vital function to not only resolve disputes arising between individual company shareholders, but also between shareholders, the company, and its directors. They can provide minority shareholders with a greater say in business decisions. In normal circumstances, the rights of shareholders depend on the level of their stake. Shareholder agreements can be used to democratise rights across all shareholders.
What is covered in a shareholder agreement?To make a proper determination whether you need a shareholder agreement, first consider what the document covers and whether this is important to your fellow shareholders and directors. A shareholder agreement provides clarity on:
- how company shareholder/director disputes should be handled
- which specific company matters require wider shareholder consent
- shareholder dividend policy – outlining payments to shareholders
- restrictions on company founders
- when the company can be wound up
- shareholders duties
- shareholder entitlements
- when major assets and/or property can be disposed of or acquired
- the issuing of new shares to incoming shareholders
- restrictions on removing and appointing directors
- board and shareholders meeting requirements
- the directors’ terms of employment and remuneration package
- first refusal for shareholders to buy shares of shareholders leaving the company
- shareholders leaving the company – including a non-compete clause
Read our latest blog posts on GDPR, featuring all the latest legal news, analysis and opinion from our expert lawyers.
- By Lawbite Team
- October 26, 2020
Many people who set up a company do so with people they know – whether colleagues, family or friends. From the outset, these relationships are assu...
LawBite can help you
LawBite is on a mission to provide business legal advice that is easier to access, clearer to understand and much cheaper. Our on-line legal advice platform can quickly connect you with expert business legal advice. Our friendly, highly qualified business lawyers, solicitors and mediators will give you the guidance and reassurance that comes from customised legal advice for small and medium sized business.
Whether you are bringing or defending a legal claim, outsourcing work, want a business contract review to ward off disagreements, talk to an expert trademark lawyer, resolve a contractual dispute with methods like mediation and arbitration, or getting your new company set up and on the right footing with a robust shareholder agreement and GDPR standards, we can help you succeed.