Shareholders’ Agreements – An Overview in 3 Minutes


Shareholders’ Agreements – An Overview in 3 MinutesA shareholders’ agreement is a private contract between some or all of the shareholders of a company, and often the company itself. This agreement will typically govern the ongoing relationship between the parties and may set out how the company is to be managed and controlled.  

Why Enter a Shareholders’ Agreement?

  • Legal Certainty: The principal advantage of a shareholders’ agreement is legal certainty. Disputes between the parties are less likely to arise in circumstances where the conduct of and relationship between the parties has been clearly regulated.    

  • Confidentiality: Many of the provisions typically included in a shareholders’ agreement could be adequately dealt with in the company’s constitutional documentation. However, while the company’s constitutional documentation is publicly accessible, the shareholders’ agreement is a private document. The shareholders’ agreement is thus a more suitable vehicle in which to address confidential, commercially sensitive or internal company matters.

  • Flexibility: A shareholders’ agreement is a flexible vehicle, easily adaptable to the changing needs of the parties. Constitutional documentation may only be varied by special resolution of the members, with amendments being notified to the relevant Registrar of Companies. However, a shareholders’ agreement may be amended with relative ease on the unanimous consent of the signatories thereto.   

  • Enhancement of Rights: Company legislation affords only basic rights to shareholders. A shareholders agreement may be used to bolster those rights or confer additional protections and entitlements. This may be of particular benefit to minority shareholders. 

Typical Clauses in a Shareholders’ Agreement 

The contents of a Shareholders’ Agreement will, of course, vary from company to company. However, matters typically addressed include the following:

  • Sale or Transfer of Shares: The parties to a shareholders’ agreement may seek to impose certain restrictions on the sale or transfer of shares in the company.  For example, shareholders may agree not to sell their shares for a set period of time (‘lock in’ clause) or to offer their shares to other shareholders before selling to a third party (‘offer round’ clause).

  • Company Management: The shareholders’ agreement may confer upon a protected shareholder certain controls over the management of the company.  For example, the shareholder may be entitled to appoint representatives to the board of directors or to veto certain decisions or transactions.

  • Dividends: Certain obligations may be imposed on the company with regard to the declaration of dividends. 

  • Dispute Resolution: Shareholders may agree how they will deal with ‘deadlocks’ or may agree to submit to mediation / arbitration in the event of disputes. 

  • Non-Compete: A ‘non-compete’ clause may prohibit a shareholder from competing with the company while a shareholder, and often for a set period thereafter. This clause may also prohibit solicitation by a shareholder of company clients or employees. 

Forming a Shareholders’ Agreement

A shareholders’ agreement may be put in place on the incorporation of the company or at any time thereafter. There is no legal requirement for all shareholders to enter the agreement, however, this will usually be preferable. Future shareholders may accede to the shareholders’ agreement by simple deed of adherence. 

Care should be taken when drafting a shareholders’ agreement. As mentioned above, the provisions to be included will vary from company to company and it is not a case of ‘one size fits all’. Legal advice should always be sought. 

Legal Blog Posts

UK Proposes New Corporate Re-domiciliation Regime
Read More
Royal Dutch Shell’s Move from the Netherlands to the UK
Read More
Common Law And Civil Law: The Key Differences
Read More
UK Court Deliveroos
Read More

 Blog Comments