Shareholder Agreement Solicitors
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In simple terms, a shareholder’s agreement is an arrangement between the shareholders of a company that sets out how the business should operate and the rights of the shareholders.
Our shareholders’ agreement solicitors have a wealth of experience drafting contracts among shareholders. To avoid disputes, we will make sure that the agreement includes key information about the shareholders’ privileges and protection, as well as the management of the company.
Benefits of Shareholders’ Agreements
Standard Articles of Association will not cover the range of legal and practical considerations that you will encounter as a company grows and develops. Plus, Articles of Association are usually public documents, unlike shareholders’ agreements. To provide clarity and demonstrate the stability of the business, it is important to have a shareholders’ agreement in place.
Not to mention, shareholders’ agreements can cover a range of issues, including:
- Rights of first refusal – This ensures that shareholders have the opportunity to buy shares that are proposed to be sold before they are offered to third parties
- Clauses about clawback or repurchase rights – If a shareholder-director or a shareholder-employee leaves, this allows remaining shareholders to clawback shares
- Cross-options – If a shareholder passes away, this allows the surviving shareholders to purchase the shares at a fair price
- Restrictions – Former shareholders can be restricted from certain activities, such as competing against the company or poaching its employees
- The director’s authority – As directors have day-to-day control of the company, it may be wise to put limits on their authority
- Exits – It is wise to plan for the potential exit of shareholders, as well as new investors joining
- Disputes – The agreement can set out processes to swiftly resolve shareholder disputes
Key Clauses
Some of the most common clauses in shareholders’ agreements cover areas, such as:
- The rights and responsibilities of shareholders – In many companies, shareholders also work in the business so it is important to clearly define their roles and contributions
- Drag along rights – This clause allows a majority shareholder to force a minority shareholder to consent to the sale of the business
- Bolstering shareholder rights – To level the playing field between minority and majority shareholders, you may consider bolstering the rights of minority shareholders
- Veto rights – This can allow shareholders to prevent the issue of new shares or new classes of shares
- Put and call options – These allow shareholders to call for shares in a company to be offered for sale, as well as the option to put their shares forward for purchase
- Dividends – Agreements may outline a policy on paying dividends from profits
- Dilution protection – This obligation aims to protect a shareholder’s existing ownership percentage
- Rights to information – It is important to define what rights shareholders have to important information such as management accounts
- Illness, death, incapacity and imprisonment – Agreements should detail what happens to shares in the event that a shareholder passes away, is imprisoned, loses mental capacity or becomes bankrupt
- Deadlock – If two shareholders each own 50% of the shares, the agreement needs to outline what happens if they disagree and end up in a deadlock
Buy-Back Clauses
Generally, shareholders’ agreements contain buy-back clauses. This provides shareholders with the right to compel departing shareholders who are employees of the company to sell their shares. These arrangements are usually distinguished between good leavers and bad leavers. For example, if an employee is dismissed, the price to be paid for the share may be lower than if they leave on their own terms.
Having this clause in place will put the company in a strong position to resolve disputes with minority employee shareholders swiftly. Our shareholders’ agreement lawyers excel at drafting these arrangements so that businesses are in an advantageous position to negotiate during exits.
Managing Directors
If a director is underperforming, it makes sense to remove them as quickly as possible to reduce the commercial damage to the business. However, if you have not set out limitations in the shareholders’ agreement, the statutory process of removing the director outlined in the Companies Act 2006 can take weeks or months to complete. But thankfully, this process can be sped up with a shareholders’ agreement in place.
How Will a Shareholders’ Agreement Affect My Business?
A shareholder’s agreement essentially acts as a special set of rules for a business on top of the Articles of Association. This means that some decisions may require a higher percentage of shareholders to agree, even if the normal rules would allow the board or a smaller percentage of the shareholders to decide. In some cases, this percentage may be above 50.1% or even 75%.
However, it is important to remember that while this agreement may impose obligations on shareholders, directors still have to fulfil their legal obligations, even if that means going against the agreement.
If a shareholder wants to enforce the Articles of Association or the shareholders’ agreement, it may be challenging to prove that they have suffered a loss due to a breach of contract. This may present further challenges if the action to be taken is clearly in the best interests of the business. In such cases, a minority shareholder may apply for an interim order to prevent a decision from being made.
Why Choose Witan?
Our legal professionals excel at not only drafting but also reviewing and advising on shareholders’ agreements. Whether you are an established business or a start-up, we can help you define the agreed processes for important issues. Plus, unlike other firms, we cut out the jargon so you can clearly understand how to protect your interests. We are proud to offer our clients the following benefits.
- 100+ years of practical legal experience
- Realistic and simple legal advice
- Representation from a Legal 500 firm
- Proven track record of dealing with shareholder agreements for high-profile clients
- Shareholders’ agreement solicitors in London, Birmingham and Northampton
Regulate How Your Business is Managed Today
Let our trained shareholders’ agreement solicitors help you avoid disputes and regulate how your business operates. To discuss your requirements, contact us today to arrange a free, no-obligation consultation.
Qarrar Somji
Solicitor-Advocate
Qarrar qualified as a Solicitor Advocate in 2014 having previously had experience in a varying range of litigation roles.
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