Shareholders Agreements Solicitors

Shareholders agreements govern the relationship between the shareholders of a company. They supplement other documents such as articles of association (by-laws) which also regulate shareholder behaviour. Shareholders agreements are generally private documents that do not need to be registered with Companies House. Articles of association, on the other hand, must be registered at Companies House and anyone can view them online.

The shareholders agreement and articles of association should between them cover the constitutional issues of the company and its day-to-day operation:

  • How the company is to be managed.
  • The division of power between the shareholders and the extent of their influence over the management of the company.
  • The terms on which any shareholder can transfer shares to a third party.
  • How to deal with disputes and deadlock between the shareholders.
  • The circumstances in which the company may be wound up.

Contents of Shareholders Agreements

Typical provisions to be found in a shareholders agreement include:

  • Funding arrangements.
  • Restriction on share transfer.
  • Dividend policy.
  • Deadlock (i.e. what should happen if the shareholders cannot agree on things)
  • Termination provisions (including drag-along and tag-along rights).
  • Minority shareholder protection (veto rights and so on).
  • Restrictive covenants.
  • Confidentiality obligations.

A shareholders agreement is a contract between all or some of the shareholders, and so can deal with all aspects of the relationship between the parties if required, including the personal rights and obligations of shareholders (for example, how they will exercise their voting rights).

The articles of association, however, can generally only take effect as a contract between the shareholders in their capacity as members and so cannot deal with matters that are personal to the members.

Amendment

Shareholders agreements can generally only be amended by the agreement of all the parties, whatever the size of their shareholding. This is in contrast to articles of association which may be amended by special resolution of the members – unanimity is not required.

Minority protection rights in shareholders agreements can prevent a majority of the shareholders from changing the articles of association.

New shareholders

New shareholders in a company are automatically bound by the articles of association when they buy shares in the company. However, they are not automatically bound by the shareholders’ agreement. Therefore, if the identity of the shareholders (or a section of them) will change frequently (a possibility in a multi-party venture) and you do not want to have to keep executing deeds of adherence to the agreement, the provisions to which you want those shareholders to be bound should be included in the articles of association.

Remedies for breach of shareholders agreements

The most common remedy is damages but an injunction may be available at the discretion of the court, for example, to ensure that each party takes the necessary voting action when voting as a shareholder of the joint venture company to give effect to its terms. Shareholders agreements often contain buy-out provisions under which parties in breach of certain terms of the agreement can be forced to sell their shares to non-defaulting parties.

Shareholder Meetings

It may be desirable to include provisions in the shareholders agreement dealing with where shareholders meetings may be held. In the absence of any constraints on them, the directors can decide where meetings are to be held.

The procedures to call and adjourn a shareholders meeting, to participate and to vote are commonly included in the company’s articles of association.

Our shareholders agreements solicitors Barry Doherty or Neil Williamson.