10 Reasons Why You Need A Shareholders Agreement

• Published date: 25 August 2020
• Subject Matter: Corporate/Commercial Law, Corporate and Company Law, Shareholders
• Law Firm: Butcher & Barlow
• Author: Mr James Hodgson

A shareholder agreement is not a requirement, however we strongly recommend it to many of our clients. Such an agreement regulates the relationship between the shareholders. It is private between the parties and there is no requirement to file this at Companies House. There are a number of clauses we can add to protect the shareholder in the future, and I have addressed the top 10 below:

1. Transferring Shares: A shareholder agreement will set out how shares are transferred and can include a right for the remaining shareholders to have first refusal on the other party's shares. Most importantly the shareholder agreement can set out how these shares are valued and how much they are worth.
2. Dealing with death: the death of a shareholder can cause serious issues for a business and pose difficult questions as to what happens with the deceased's shareholding. A shareholder can set out what happens to the shares and, again, how they are valued to give the parties peace of mind.
3. Minority protection provisions: The shareholding in a company is not often a 50/50 basis and there may be minority or majority shareholders. To protect a minority the agreement can be drafted so that certain acts can't happen without the consent of a specific percent of shareholders. There are no hard and fast rules of what is included but we advise clients based on their individual circumstances It's a provision put in place to ensure the minority are not excluded from key decisions in the business and are kept abreast of all the relevant day-to-day activities. Alternatively, if acting for the majority, you may want the provisions to be drafted to allow such acts to take place without having to consult the minority shareholders. The key here is finding a balance between all parties and catering for the business's needs.
4. Restrictions on the shareholders: Restrictions are key to ensure that client supplier or employees are not poached by the outgoing party. Such restrictions need to be carefully considered to ensure that they are not so far reaching as to be unenforceable.
5. Confidentiality: Many businesses rely on information and leads which, if they were available in the public domain may seriously harm a business's prospects. A simple confidentiality provision can protect the value in the business should the parties part...