You might wonder why you should take the time to think about the terms of a Shareholders’ Agreement and then pay for the agreement to be drawn up?  Perhaps your company, whether new or established, is performing well, all the directors and/or shareholders get along and you all have the same goals.  So what benefit is there in having a Shareholders’ Agreement?

Below are 4 key reasons for drawing up an Agreement, there are many others and some may be unique to your company.  The benefit to drawing up a Shareholders’ Agreement whilst business is going well is precisely for that reason; it is easier to discuss potentially contentious issues whilst all the shareholders get along and feel they can be open with their opinions.

  1. Exiting Shareholder – Shareholders leave a company for many reasons; retirement, disagreement, change in personal direction and so on, but if you have a documented plan detailing how the shares held by the exiting shareholder are to be dealt with, it can make the transition much smoother and reduce the level of ambiguity and stress for all those involved.
  2. Introducing Shareholders – It is not uncommon for new shareholders to join a business whether that be as an investor or an employee who now has a stake in the company. A Shareholders’ Agreement can outline how such shareholders are to be introduced, for example, will existing shareholders agree to issue more shares, in what class and so on.
  3. Management – For many privately owned companies the shareholders and directors are more often than not the same people, but there are companies out there who have directors who are not shareholders and vice versa. A Shareholders’ Agreement can be used to outline those decisions which shareholders feel should not be at the sole discretion of the directors and the directors have a clear message about which issues must have shareholder consent.
  4. Minority Shareholders – A Shareholders’ Agreement can be used to protect minority shareholders and ensure they are involved in certain decisions, for example share issues, share buybacks, sales of shares to third parties and so on.

As mentioned above, there are many more reasons why a Shareholders’ Agreement can benefit your company and give you peace of mind.  It is also important to note that the Shareholders’ Agreement does not have to be published on the Companies House Register website, therefore the contents will remain private to those involved.

It is usually best practice to use a solicitor to help draw up the Shareholders’ Agreement and it goes without saying that you should always take time to read through and fully understand legal documents before signing.

Author: Helen Griffiths, Accounts and Audit Manager, Plus Accounting

Any views or opinions represented in this blog are personal, belong solely to the blog owner and do not represent those of Plus Accounting. All content provided on this blog is for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site

Date published: 19 August 2021