Shareholders’ Agreements
If you operate your business as a company, and especially where the shareholders are the directors or employees of the company, then many of the issues relating to a Partnership Agreement are equally pertinent. These should all be considered and included in a Shareholders’ Agreement. Although many of those matters will be dealt with adequately by the Articles of the company, there are a few key advantages specific to a Shareholders’ Agreement. We can advise you on these, and prepare the appropriate documentation.
Contract
A Shareholders’ Agreement is a contract, and it will be far easier (and cheaper) for this to be enforced in the event of a problem than by relying on the Companies Acts to provide a remedy.
Dividends
The law does not automatically entitle a shareholder to a dividend, but the Agreement can be drafted so as to require (or restrict) the payment of a dividend. This can be done in a Shareholders’ Agreement by, for example, requiring dividend policy to be decided upon by a special majority of the shareholders.
Issue of Shares and Protection of Voting Rights
One of the main uses of a Shareholders’ Agreement is to protect the shareholders from the dilution of their interests. This means that the company might be prevented or restricted from issuing new shares thus making the existing holdings less significant and valuable. Similarly, minority holders might be given the right to be included in any sale by the majority shareholders. There are numerous matters which need to be considered here, and we can advise on the most suitable provisions for your business.
Protection of Interests
Unless different classes of shares are issued, the company is bound to treat all shareholders alike. If you wish certain members to have preferential rights we can incorporate that into a Shareholders’ Agreement. A Shareholders’ Agreement can also be used to protect and entrench the position of a director.
Secrecy
The Agreement, unlike the Articles, is not open to inspection by the public.
Veto
You may wish that one member has the power to block decisions on particular matters. This can be done by requiring unanimity (or a special majority) on, for example, major business decisions. We can advise on the implications of such a clause and include it in an Agreement if you desire. The alternative is to rely on the default majorities required under the Companies Acts, which offer less protection.
Insurance
Finally, we can draft a Shareholders’ Agreement for you to tie in with the Shareholder Protection Plans that are available from insurance brokers.
If you have any enquiries, please contact Paul Warman, Peter Sheppard or Richard Guthrie – or alternatively please call us on 01603 610911.
