Shareholders’ Agreement

A Shareholders’ Agreement is an agreement made between shareholders of a private company governing the relationship between them and setting out rules on how the company is to be run. Sometimes these agreements can be appropriate when you are setting up a company with someone else, perhaps even family or friends. You may also need a Shareholders’ Agreement when a third party wishes to invest in your company.

Shareholders’ Agreements are highly bespoke documents that can range from the very simple to the very complex. A Shareholders’ Agreement may:

• regulate the issue and transfer of shares in the future – this might include provisions preventing unwanted third parties from acquiring shares, rights of first refusal on share transfers for the Company or particular shareholders, or buy-back provisions for employee-shareholders who leave;

• describe how the company is going to be run – this could cover appointing and removing directors, any particular rights in this respect that an investor or minority shareholder may have, capital expenditure approval, the provision of management information and regulating or limiting the payment of dividends;

• provide protection for minority shareholders by setting out “veto” items which prevent certain actions taking place without an agreed level of shareholder consent, for example changes to the company’s constitution, spending or salaries over a certain level, or perhaps any acquisitions by the company; and

• prevent an employee-shareholder who leaves from setting up in competition by means of restrictive covenants relating to your clients, suppliers and employees.

There may also be particular provisions that need to be included in your Shareholders’ Agreement and so legal advice should be sought at an early stage. Everyman Legal can assist you in preparing a Shareholders’ Agreement that works alongside the Articles of Association of your company to protect both you and your business.