Shareholders Agreements are key contracts that govern the relationship between the shareholders of a company. EM Law are experts in drafting, negotiating and advising clients on shareholders agreements. Our lead corporate lawyers are Barry Doherty and Neil Williamson who have extensive experience in advising clients on shareholders agreements and a wide range of other corporate law matters.
Shareholders agreements govern the relationship between the shareholders of a company. They supplement other documents such as articles of association (bye-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:
Typical provisions to be found in a shareholders agreement include:
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.
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 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.
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.
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.
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