Why are shareholders agreements important?

03.03.2022

Business

Shareholder Agreements, why they are important. 

A shareholders’ agreement is entered into between all or some of the shareholders in a company. It regulates the relationship between the shareholders, the management, ownership of the shares, and the protection of the shareholders. Also governing the way in which the company is run. 

For limited companies, when it comes to decision making, Company Law states shareholders who own more than 50% can pass a motion at a company meeting regardless of the views of other shareholders and, if the shareholder(s) owns more than 75% of the shares they control the company outright and can veto the decisions of all other shareholders. 

• A shareholders agreement can help define how a business makes decisions for the benefit of all owners.  
• Key areas for any shareholder agreement: 
• Company details including structure, directors, and officers 
• Purpose and aims of the company 
• Equity split of shareholders 
• Parties to the agreement 
• Shareholders' rights, obligations, and commitments 
• Decision-making processes on major issues required voting majorities and day to day operations 
• Restrictions on the sale of shares 
• Right of first refusal and pre-emptive rights to acquire shares on leaving, retirement, death or disability 
• Death, disability, and other retirement compensation payments 
• Management contracts, director approval, and remuneration amounts  
• Insurance and other protective requirements 
• Professional advisers and change of professional advisers 
• Dispute resolution 
• Changes to and termination of the agreement 
• Buy out provisions for leaving shareholders 
• Valuation of share on change and valuations of the business  

Shareholder agreements should be an essential document for any limited company.  

Please speak to our business services teams should you need help in planning for an agreement, we can liaise with your solicitor.  

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