≡ Menu

What is a shareholders’ agreement?

A shareholders’ agreement is exactly what the name suggests; an agreement between the shareholders of a company.

Shareholders Agreement
The articles of association of a company also govern the relationship between the shareholders, but a properly drafted shareholders’ agreement can have many benefits over the articles of association. Most importantly, it is a private contract and therefore the terms of the agreement can be kept confidential between the shareholders (where as the articles of association are public).

The shareholders’ agreement also tends to give the shareholders more flexibility over how they regulate their relationship than the articles of association do.

Although the full range of what a shareholders’ agreement can include is almost limitless, there are certain key areas that many shareholders’ agreements cover:

  • Details of any equity investments and the financing of the company;
  • Details of the business of the company and how it will be run;
  • How decisions will be made and any critical decisions that require special consents;
  • What happens if the shareholders fall out (dispute resolution provisions);
  • The appointment and removal of directors;
  • Exit provisions: How shareholders will realise their investment;
  • Provisions to protect the interests of the company, including non-compete provisions and non-solicit provisions;
  • Share transfer provisions/restrictions; and
  • Information rights for the shareholders.

It is generally recommended that, unless you are the sole shareholder of a company, you always consider entering into an appropriate shareholders’ agreement and, potentially, a set of articles tailored to the provisions of the shareholders’ agreement.

Although it does involve costs to set up initially, it can lead to significant savings later on when disputes may arise or shareholders wish to realise their investment. Without a shareholders’ agreement, people have been forced to wind up the company as a result of a dispute losing the majority of their investment.

Further Information

This article was provided by Elemental CoSec for general information and should not be relied upon. For assistance with the preparation and drafting of a shareholders’ agreement, please do get in touch with them to discuss your requirements.

Top Articles

Do I need an accountant for my limited company?
Find out what a limited company accountant could do for you.

Mortgages for limited company directors and contractors Are you self-employed and looking at getting a mortgage?

How much limited company tax do I have to pay? Find out the latest tax information for limited company owners.

Company Bug Newsletter

Keep up to date with small business news and guides by signing up to the Company Bug newsletter.