The importance of putting a shareholder agreement in place when setting up a business.

The importance of putting a shareholder agreement in place when setting up a business.

Every business should consider putting shareholder or a partnership agreement in place, depending on your ownership structure. It is important to have some protection and agreed procedures to resolve a shareholder matter or dispute on an unforeseen situation.

A shareholder agreement is a simple agreement that can be amended from time to time as a business grows and new shareholders are admitted. The agreement is confidential and is not filed at Companies House, unlike Articles of Association which are on public record, and so allow shareholders to keep certain matters between themselves.

Its purpose is to protect the shareholders’ investment in the company, to establish a fair relationship between the shareholders and govern how the company is run. The agreement will: set out the shareholders’ rights and obligations. Properly drafted (together with a set of matched articles of association), a shareholders agreement can document and set out:

Matters which require the consent of all of the shareholders, for example entry into major contracts, borrowing, allotting further shares;
rights to dividends, voting rights;
A mechanism for dealing with the exit or death of a shareholder, including how the value of the shares are calculated and who will be entitled to acquire these shares.

If your company would benefit from a shareholder agreement and new articles of association, or if you feel that your current arrangements need updating, do feel welcome to contact us on 01270 211567 and we would be happy to assist you.