A shareholders agreement is flexible and can adapt to the needs of the owners of the company. Our friendly team of experts can help you on any shareholder related matters.
Dependent on the company’s business, the needs or expectations of those individuals, a shareholders agreement can adapt to their needs now and leave room for changes in the future, including changes or growth of the business and the ability to provide for new business partners.
Whilst it is impossible to comment on every part of a shareholders agreement, we address here some of the more common needs of owner/managers of a company in respect of any shareholders agreement to be entered into at the outset, or even later on in the company’s life.
A shareholders agreement will provide for almost all aspects of how the company is run, including defining roles, remuneration, corporate governance responsibilities and the procedure to follow in the event of a dispute.
Where conflict exists, a shareholders agreement will also bind the company and usually take precedent over the company’s constitution as established by its articles of association.
However, a shareholders agreement cannot be used to jeopardise a shareholder’s interest in contravention of any legal protection or requirement under the Companies Act 2006 or otherwise.
Providing for remuneration
A shareholders agreement can make provision for how individual owner/managers are remunerated and rewarded for their work and their interest in the company. It can reward a director/shareholder where their efforts drive the company’s success and growth, and it can provide for return to categories of shareholder – who may agree different rights in specific circumstances.
For certain types of company, more commonly smaller companies, the remuneration of directors and shareholders (where they are the same individuals will usually be driven by maximising tax efficiency although this benefit comes with a number of risks, especially where drawings are made via a director’s loan account.
The most common purpose of a shareholders agreement in these circumstances is to agree salary, any bonuses and the dividend policy. This is particularly important where some of the shareholders are the investors and some are responsible for dealing with the company on a day-to-day basis (and therefore have more control over where income is paid).
No matter how well planned (and many small companies do not plan well from the beginning) it is not unusual for disputes to arise between business owners.
Whether that is a complaint as to the company’s business direction, differing levels of remuneration, a failure to pay dividends, certain directors moving assets away from the company or just personality clashes (which is perhaps one of the most common reasons for such a dispute), it is a fact of life that it is very difficult for people to continue working together in harmony and with minimal disagreements. This presents a risk to the company itself.
- at Francis Wilks & Jones commonly see disputes between family members where younger parts of the family are brought in, more family members get involved or where there is a difference in functions arising from professional training or differing skills and expertise.
- often it is just a case of non-participating sleeping partners wanting out or more serious disagreements may arise which results in the parties being unable to communicate.
Where there is a shareholders agreement all of these difficulties can be provided for, including how such disputes are mediated and any settlement or exit terms that must be complied with in such circumstances.
Conventionally, as with any contract, a non-party is not bound by it. However, a shareholders agreement, to which the company is a party, can provide for new shareholders to be required to adopt the shareholder agreement as a term of the shareholding, and thus agree to be bound by it, as a term, of holding the shares they have acquired.
This removes any risk to the shareholders agreement becoming unenforceable over the course of time.
At Francis Wilks & Jones we deal with all forms of shareholders agreements and exit strategies for shareholders and can advise you on the most pragmatic terms that you should include in a shareholders agreement in accordance with your personal needs. Please call any member of our team for your consultation now. Alternatively email us with your enquiry and we will call you back at a time convenient for you.