By Charlie Pattihis, Corporate Solicitor at Healys LLP
The short answer is probably yes!
What is a Shareholders’ Agreement?
Put simply, it is a contract between the owners of a business (the shareholders) which sets out the relationship between them, how the business will be run and what should happen if difficulties arise.
It is a private document which means that, unlike a company’s articles of association (the rules that the company and others intending to deal with the company must abide by), it does not need to be registered with Companies House and this gives the parties the chance to agree bespoke and private arrangements for the business which they would not necessarily want made available to the public.
The shareholders’ agreement sits alongside the articles of association and it is important to make sure each is consistent with the other.
What sorts of things do they cover?
They can cover a variety of issues but will usually:
- set out rights, roles and responsibilities of each shareholder;
- regulate the issue and/or transfer of shares;
- deal with how decisions about the management and day to day operation of the business are made;
- provide protection for shareholders (minority or majority shareholders) and the company;
- provide a road map and procedure to settle disputes.
Why are they so important?
A well drafted shareholders agreement can provide contractual certainty, protection and a framework for decision making or dispute resolution. It perhaps sounds a bit negative but one of the key reasons for having a shareholders’ agreement is to provide guidance and protection if things go wrong.
When starting out on a new business venture, energy amongst the owners is high. Everything is new, exciting and full of optimism. But, as with any human relationship, cracks can start to appear if for example someone isn’t pulling their weight, a decision is taken without it being agreed or simply someone does something they should not.
Where relationships do break down, business owners often do not know where to turn and in many cases there is value in the business and emotions can run high.
This is when business owners can fall back on their shareholders’ agreement and why it is important to prepare for this situation in advance.