Drafting a shareholders agreement

by | Oct 6, 2023 | Blog, FAQ, YBL Blogs

I’m often asked about shareholder agreements, so this article serves as FAQs of sorts to advise you on all aspects of drafting a shareholders agreement:

Firstly..

What is a shareholders agreement?

A shareholders agreement is a legally binding contract between two or more shareholders of a business. They are really important documents, probably one of the most important in a company’s legal life. A shareholders agreement is for shareholders of a limited company, whilst a partnership agreement is for partnerships.

What should be included in a shareholders agreement?

Shareholders agreements will typically include clauses about:

  • Regulate the affairs of a company without it being publicly available like Articles of Association are
  • Impose restrictions on shareholders both during and after their time of share ownership
  • Address what happens to your shares on death
  • Ensure that shares are not sold to a third party
  • Govern the rights and responsibilities of shareholders
  • Set down voting requirements and list what may require a greater percentage of the vote.
  • Help minimise the risk of shareholders disputes

A well-drafted shareholders agreement should cover a wide range of important topics.

Do shareholders agreements need to be registered?

It is not necessary to file a shareholders’ agreement at Companies House.

Shareholder agreements in the UK are governed by contract law and are legally binding when they meet the necessary legal requirements, such as being in writing, signed by all relevant parties, and not violating any applicable laws or public policies.

While shareholder agreements themselves do not require registration, certain information related to the company and its shareholders may need be filed with the Companies House, which is the UK government’s official register of companies – things like director changes, new articles of association and share issues. However, the shareholder agreement itself is not part of this public filing.

It’s essential for all parties involved in a shareholder agreement to keep a copy of the signed agreement in a secure location and to ensure that it remains up to date and reflective of the current circumstances and agreements among the shareholders. Amendments or changes to the agreement should also be documented and agreed upon by all relevant parties.What makes a shareholders agreement legally binding?

Several factors contribute to the legal binding nature of a shareholders agreement:

  1. Consideration: Consideration refers to something of value exchanged between the parties. In the context of a shareholders agreement, it is the ownership of shares in the company.
  2. Voluntary agreement: The agreement is entered into voluntarily by the shareholders, and they must willingly agree to its terms.
  3. Meeting legal requirements: The agreement must meet the legal requirements of the jurisdiction in which the company is incorporated. It should comply with applicable corporate laws and regulations.
  4. Written document: Shareholders agreements are typically written documents, signed by all parties involved, and not just oral agreements.
  5. Enforceability: The terms and conditions outlined in the agreement must be legally enforceable. This means that the provisions must not violate any laws or public policies.
  6. Consistency with Articles of Incorporation: The shareholders agreement should be consistent with the company’s Articles of Incorporation and bylaws to ensure that it does not conflict with these foundational documents.

Can I write my own shareholders agreement?

You can – but you probably shouldn’t.

It is highly advisable to involve legal professionals experienced in corporate law.

Here’s four good reasons why:

  1. Dispute prevention: Having legal experts involved can help anticipate potential issues and conflicts, allowing for proactive measures to prevent disputes among shareholders.
  2. Complexity: Shareholders agreements can be highly complex, covering a wide range of issues from governance and decision-making to dispute resolution and exit strategies. Legal experts can help ensure that all necessary provisions are included and that they are legally sound.
  3. Customisation: Legal professionals can tailor the agreement to your specific needs and the unique characteristics of your company, its industry, and its shareholders.
  4. Legal compliance: A poorly drafted shareholders agreement may not hold up in court if disputes arise. Legal professionals are well-versed in relevant laws and regulations, ensuring compliance and enforceability.

I’ll work with you (and sometimes your accountant and/or financial advisor) to get the document right, bespoke for your specific needs and requirements. Importantly, I’ll ensure you understand what it all says. Sometimes these agreements are complicated and not the easiest to read through, but our task is to ensure that you know how it works.

I act for both large and small businesses and give great legal advice as well as commercial business advice. Get in touch.

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