HomeFWJ TakeawayShareholder disputesRisks to shareholdersWhy a shareholder agreement is so important

Shareholder agreements are hugely important in any company set up. The govern how issues are to be dealt with - which can be hugely important at times of stress or when it comes to selling your shares later on.

All companies in the UK start out with appointed directors and appointed shareholders and most commonly the company is a quasi-partnership, which is where the company acts exactly like a partnership and the shareholders and directors are identical (or broadly identical). These individuals are often referred to “owner/managers”.

If you and your associates – be that a family run business or a business idea created between friends – are setting up a company business then you need to ensure that your business relationship (as opposed to your personal relationship) remains consistent and is not at risk of any changes that may occur between you all.

  • alternatively, particularly for more established family-run businesses (whether large or small) there is often a generational change that can have an impact on how the business is run.
  • as long as any changes are agreed between owner/managers, then this should not be problematic – but this is not always the case and hence the need to ensure there is something which establishes what each and every Shareholder wants of the company.

This is the purpose of a shareholder agreement.

What happens if there is no shareholders agreement?

Without a shareholders agreement a company will be run in accordance with its constitution (the company’s articles of association) and directors and the company will only otherwise be restricted by legal obligations, most of which exist under the Companies Act 2006 and associated legislation (which contains restrictions on what directors are permitted to do).

However, unless the articles of association have been amended, there is no structural or other document which aligns the company’s business with the original intentions of the owner/managers as a group. This becomes particularly important in circumstances where there are disputes between the owner/managers and uncertainty as to how such disputes are settled.

What is a shareholders agreement?

A shareholders agreement is a private agreement between shareholders as to how a company is run and will usually exist alongside the company’s articles of association.

  • a shareholders agreement is flexible and can tightly constrain the business and its directors, or can act more loosely reflecting the direction that it is agreed the company heads in.
  • each shareholders agreement is bespoke to the needs of the shareholders.

A shareholders agreement can dictate what the directors of the company can and cannot do and what each shareholder is entitled to or their rights in the event that there is any disagreement as to how the company is run or, more seriously, how to settle a dispute.

One of the most common parts of a shareholders agreement is to manage exit arrangements and any potential fall-out from a shareholder or director upon exit.

A well drafted shareholders agreement should ensure that future problems are avoided, disputes between shareholders and directors (or between them) are easily and quickly settled with certainty and, should it be required, a shareholders agreement can deal with directors conflicts, the removal of a director or shareholder and company deadlock problems.

If you require more information on exploring the reason for a shareholders agreement and whether one is required by you and your business partners then please click on the links to our webpages here:

At Francis Wilks & Jones we can advise and assist you with regard to setting up a company and its business or reviewing whether a company needs a shareholders agreement and we can then negotiate and draft the necessary agreement reflecting all owner/managers interests and wishes.

One particular circumstance where shareholders agreements are often invaluable is where the owner/managers of a business are growing older, may have children or business managers looking to take over, and need to manage succession planning and disputes which may arise from the next generation of business owners.

Please call any member of our team for your consultation now. Our expert team is here to help you today

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