A shareholders’ agreement is a crucial document that outlines the rights, responsibilities, and obligations of each shareholder in a company. It helps prevent disputes. protects shareholder interests and if drafted correctly addresses future investment plans. Time spent now putting shareholder agreements in place will save you time and money in the future.
Here are 10 things you should know about shareholders’ agreements:
1. What is a Shareholders’ Agreement?
A shareholders’ agreement is a legal contract between a company’s shareholders, and sometimes the company itself. Its primary purpose is to outline and regulate the rights, responsibilities, and obligations of each shareholder. This agreement helps prevent disputes, protect shareholder interests, and establish clear guidelines for managing the business.
2. Are companies legally required to have a shareholders' agreement?
No, companies and shareholders are not legally required to have a shareholders’ agreement. However, having one is highly beneficial for managing a business effectively. A well-drafted agreement can help resolve disputes, outline processes for share transfers, specify how dividends are declared, and establish any necessary restrictive covenants and prepare for future investment. By putting one in place, you can ensure smoother operations and avoid potential conflicts down the line.
3. Are shareholders’ agreements private or public?
It is a private, legally binding contract between the shareholders and the company. Unlike public documents, such as Articles of Association, shareholder agreements remain confidential and are not filed with any government authority. This privacy allows shareholders to outline terms, rights, and responsibilities without public disclosure.
4. When does an agreement have to be registered at Companies House?
A shareholders’ agreement for a private limited company typically does not need to be registered at Companies House. It is usually a private contract between shareholders, separate from the company’s constitutional documents.
However, there are some variations to this as outlined in the Companies Act 2006.
Under sections 17, 29, and 30 of the Companies Act 2006, certain resolutions (such as special resolutions) or agreements must be filed with Companies House within 15 days of being passed or made. Where a shareholders’ agreement is referred to in the Articles of Association, and the Articles are not capable of interpretation without reference to the shareholders’ agreement, there may then be a requirement to file the agreement with the Registrar at Companies House.
5. Are shareholder agreements legally binding?
Yes, agreements are legally binding as long as they meet standard contract requirements. This includes mutual agreement between the parties, proper documentation of the offer and acceptance, valid consideration, and a clear intention to create legal relations. If these conditions are met, a shareholder agreement will be enforceable under the law.
6. In the event of a breach, how is the agreement enforced?
When an agreement is breached, enforcement relies on contract law. The most common remedy for a breach is financial compensation, also known as damages. However, depending on the situation, other legal remedies may be available, such as seeking an injunction to prevent further harm. Understanding how to enforce a shareholder agreement is crucial for protecting your rights and ensuring compliance with the terms.
7. When should you have a shareholders’ agreement?
It’s best to have an agreement in place before shares are issued. While it’s not legally required, an agreement is highly recommended to prevent future conflicts, disputes, or misunderstandings among shareholders and we strongly recommend having them in place. This document is crucial for businesses of any size, industry, or structure, as it sets clear expectations and guidelines for all parties involved. Setting up an agreement early ensures smoother operations and better dispute resolution down the road. Don’t wait—protect your business and shareholders by putting an agreement in place as soon as possible.
8. Can I protect my rights without an agreement?
In short – yes. While a shareholders’ agreement is a common way to outline the rights and responsibilities of shareholders, it’s not the only option. Every company is required to have constitutional documents, such as a memorandum and articles of association. By creating a bespoke set of articles of association, you can address many of the same issues typically covered in a shareholders’ agreement.
Our legal experts can help you draft tailored articles to protect your rights and meet your specific business needs.
9. Can I sign the shareholders’ agreement electronically?
Yes, you can sign a shareholders’ agreement electronically, as long as the agreement specifically includes a provision allowing the use of electronic signatures. Make sure to check the terms of the agreement to confirm this option. Many businesses now prefer electronic signatures for their convenience and legal validity.
10. When should you update or change a shareholders' agreement?
It’s important to update your agreement whenever there’s a significant change in your company.
Common situations where you should review and amend your agreement include:
- Bringing in third-party investors: If your company is seeking outside investment, it’s crucial to update the agreement to reflect new ownership terms.
- Changes to share structure: Adjustments like group restructuring or altering the company’s share capital require an updated shareholders’ agreement to maintain clarity.
- Succession planning: Preparing for future leadership or ownership changes is a good time to revise the agreement.
- Disputes with Shareholders: If a shareholder is leaving due to a dispute, updating the agreement ensures the terms are clear and fair for all parties.
Regularly reviewing your shareholders’ agreement helps protect your business and ensures it stays aligned with your goals as your company grows.
Conclusion
Proelium Law has extensive experience in this area. With an in-depth understanding of contract law and expertise in company structures, our team can provide tailored solutions that protect your interests and promote smooth operations within your business.
Whether you’re establishing a new agreement or making changes to an existing one, trust Proelium Law for reliable legal guidance and support.
Contact us today to learn more about our services.
