HomeFWJ TakeawayShareholder disputesShareholder agreementsDo I need a shareholders’ agreement?

What is it?

A shareholders’ agreement is an agreement between shareholders which

  • governs the ownership of the company;
  • protects the shareholders’ investments; and
  • aims to establish a fair relationship between the shareholders.

There are various clauses that are typically included in a shareholders’ agreement such as a shareholder duties clause, a dividend clause and a buy-out clause.

A good shareholders’ agreement should be bespoke and tailored to the needs of the company. It should also contain specific practical rules in respect of the company and the relationship of the directors. Whether a minority or majority shareholder, a well drafted shareholders’ agreement ought to cater for the all parties fairly.


There are various benefits of having a shareholders’ agreement in place, most notably, it is a clear and concise document which outlines the various rules and provisions in respect of the shareholders of the company.

  • most shareholders would rather have an agreement in place than to simply rely on the rules determined by the articles of association of the company;
  • this is because these rules are often quite generic and can only normally be amended with a special resolution of the company and may disadvantage minority shareholders.

In addition, a shareholders’ agreement can confer special rights to the shareholders they may have not ordinarily been given by virtue of the company’s articles and memorandum. These rights could include extra permissions to veto specific types of decisions.

One of the major advantages of a shareholders’ agreement is with regards to the sale of their shares. A shareholders’ agreement ought to provide a means of valuing shares. Departing shareholders’ may see this as a way of ensuring they receive the maximum return for their money invested and remaining shareholders will want to ensure that their business is not crippled by an over generous pay-out.

Any disadvantages?

There are no real disadvantages of getting a shareholders’ agreement drafted however it could be considered that the binding nature of the agreement can be a problem at times. A shareholders’ agreement only binds the parties to the agreement, as such, if a shareholder transfers his shares, the transferee will not become automatically bound by the terms of the agreement. However, this can be resolved by requiring the incoming shareholder to sign a deed of adherence.

  • in addition, as a shareholders’ agreement is a contract it is therefore subject to the ordinary rules of contract law;
  • where there is a dispute with regards to the meaning of a particular clause, the court would seek to establish the intent of the parties based on the wording of the contract;
  • to ensure that no issues arise, it is paramount that the drafting of the shareholder agreement clearly and adequately reflects what the shareholders had in mind.

How do I go about getting one drafted?

First it is essential that the shareholders of the company are in agreement with all, if not most, of the intended aims of the shareholders agreement. This then ensures that the drafting process moves more efficiently.

Here at Francis Wilks & Jones, we would send our clients a comprehensive shareholders’ questionnaire with helps them to identify the different aspects of the agreement which are essential to their specific company. The shareholders’ questionnaire also helps to prompt some of the areas that they may not have yet considered.

Provided the shareholders are in agreement with regards to the terms and purpose of the agreement, it shouldn’t take too long for the agreement to be drafted.

How much will it cost?

The cost depends on the terms and the extent of the agreement.

Here at Francis Wilks & Jones, we recognise that no two companies are the same and we are willing to discuss fee arrangements with you beforehand, including fixed fees for certain work, so that you get the best value for your money and certainty on costs.

What if I want to amend it after it has been agreed?

Provided the shareholders are all in agreement, making any amendments to the shareholders agreement will be straightforward. This can be done orally however we would strongly advise documenting any amendments in case of any challenge in the future.

If there is still some debate between the shareholders regarding the proposed amendments, our lawyers at Francis Wilks & Jones, are happy to assist the negotiation process by discussing with you the pros and cons of the various amendments.

Do I need to draft a new agreement when a new shareholder joins?

Not necessarily, if there are no modifications to be made to the agreement then a new shareholder can simply sign a deed of adherence. The deed of adherence will signify that the shareholder agrees to the same terms as the shareholders’ agreement already in place. Even if there are minor amendments to be made this can be incorporated into the deed of adherence.

If, however, there are significant changes to the terms of the agreement it may be more efficient to redraft a new agreement that caters to these changes and adequately protects the new ownership structure.

If you have any queries in relation to shareholders’ agreements or would like to instruct us to assist you with drafting your shareholders agreement then please do not hesitate to contact us here at Francis Wilks & Jones.

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