What is a Shareholders Agreement?
A shareholders agreement is a legally binding contract between the shareholders that complements your company’s Articles of Association. It is a private confidential document that does not need to be filed at the Companies House but some terms of which must be replicated in your articles to be fully effective.
The main purpose of the Shareholders Agreement is to provide clarity on key matters that affect all the shareholders, such as:
- What rights do the shareholders have?
- When do shareholders need to be consulted by the Directors on decisions affecting the company?
- Under what circumstances they can transfer their shares to a different person?
A shareholders agreement is a constitution of sorts that maps out the running of a company and how many votes are required to make any decision – either by the shareholders or the board of directors.
Why do you need a Shareholders Agreement?
Here is a scenario for you to consider: You are an early-stage start up with a great concept and your product is in a development phase. Most likely, the last thing you think about is sorting out your legal documentation and investing into anything that does not directly improve your product. Sound familiar?
Well, we urge you to reconsider! A Shareholders Agreement details the relationship of the Shareholders and directly influences protecting your product and hard work. If there is one thing that you should get in place as soon as you shake hands with your Co-Founders, it is a properly drafted Shareholders Agreement. Also keep in mind that this is likely to be the first document that a future investor may want to see when you are raising capital – the shareholder set up can play a pivotal role when fundraising.
Think of your Shareholders Agreement as an insurance policy that offers you protection against unforeseen circumstances and conflicts that may arise in the future – be it with your Co-Founders, Investors or Directors. Sure, you are all on the same page now, but disputes do happen and this is where a legal framework for resolving your disputes is invaluable – on anything from valuation, to share transfers, to ‘good leaver’ interpretations – it comes in very handy when you need it most.
Do you need a Shareholders Agreement?
Get in touch with our experienced legal team to discuss your legal needs and to help you prepare a Shareholders Agreement for you to protect your company and your business interests. If you have a Shareholders Agreement in palace already, and would like to discuss or review your agreement, feel free to get in contact with our team too.