What will happen if one of you wants out?
A professionally drafted shareholders’ agreement may seem an unnecessary cost but it can save time and cost should things not go according to plan – for whatever reason, death, disagreement, wanting to exit and the like.
The agreement will:
If you are a minority shareholder a negotiated shareholders’ agreement is essential to protect your rights being changed without your agreement.
As a majority shareholder the agreement is necessary to protect you from transfers of shares to parties not to your liking.
A shareholders’ agreement is even more necessary where there are no majority holders to regulate how decisions are made, most importantly, in situations where the parties don’t agree.
Though it is never too late, the best time to put a shareholders’ agreement in place is at the start of an enterprise. If this has not been done then we suggest you get one put in place as soon as you can – where there is a break down between you the other owners it is already too late.
The main elements to consider in a shareholders’ agreement are:
It is possible that the contents of the shareholders’ agreement may overlap with other company documents, particularly the articles of association and Directors Contracts.
We suggest you seek legal advice if you are not sure which provisions to include in which document and to ensure that the documents do not have any contradictory provisions.
What if you work for the business and you’re a shareholder? Do you need anything else? You should have a services contract that protects your rights.
A Directors’ Service Contract will usually include:
What about the Articles then? Are they useful or necessary?
Basically the articles of association determine the rules for running your company. They are the company’s governing document and give the rules for doing things like appointing and removing directors, making decisions, the rights and duties of shareholders and directors, etc
Most new companies use the standard Model articles issued by Companies House. What matters most is that the articles are consistent with the Shareholders’ Agreement.