Every company limited by shares and registered at Companies House has a constitution. That constitution is known as the Articles of Association. The Articles of Association serve as an agreement between each of the shareholders as well as the shareholders and the company and they lay the rules for how the company will be administered on behalf of the shareholders.
Shareholders’ agreements
Notwithstanding the Articles of Association, many company owners also choose to have a separate shareholders’ agreement in placShareholders agreements contain supplementary provisions that are not included in the Articles of Association. A significant advantage of a shareholders’ agreement is that it is a private document which is not registered with or on display at Companies Hous
The most important benefit of preparing a shareholder’s agreement is that it allows clarifying the intentions of the owners of a new or existing company. Quite often, people go into business without fully considering the “what ifs” of the business arrangement. The preparation of a shareholders agreements (and partnership agreements when entering a partnership) usually result in a dialogue regarding the difficult issues which can be resolved and agreed upon in writing. This process saves future misunderstandings and potential damage to a company’s business.
Shareholders agreements can have several objectives depending on the circumstances of the owners of a company:
Shareholder agreement content
Reserved Actions
Rather than giving the directors, some of whom may also be shareholders, complete authority, the shareholders may decide that some decisions will require their approval. A few examples are as follows:
Deed of adherence
A Deed of Adherence is a document by which a new shareholder is made a party to an existing Shareholders' Agreement. It is used when a person or other legal entity becomes a shareholder of a company where a Shareholders' Agreement is already in place.
Guarantees and indemnities
When a small company needs loan finance, the lenders may ask the shareholders to guarantee the loan. A joint guarantee means joint and several liabilities which means that a shareholder’s commitment could be disproportionate to his/her shareholding. Shareholders’ agreements and loan agreements should be structured to prevent this.
Share Capital
Shareholder agreements should make comprehensive provisions regarding the issue of share capital. The issue of new shares or a new class of shares should be a reserved matter requiring the consent of all the shareholders.
Competition
Agreements should also deal with the potential problems when shareholders and or directors leave a company in order to join or set up a competitor company.
Your first shareholder’s agreement
The only good advice for shareholders setting up a new company is that they should consult a solicitor regarding the drafting of the shareholders’ agreement. However, that may be an expensive or unaffordable option for many company owners, especially when there is limited capital for establishing the business. We offer a basic document that can be adapted and used as a first agreement. A major benefit of new company owners discussing a shareholders agreement is that the process entails all participants outlining their objectives and requirements. If that can be clearly laid out, there would be a foundation for a business agreement. Later, when the company possesses more resources, solicitors can be employed to prepare a more professional and fuller agreement.
To purchase a draft shareholders agreement
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