It is often advisable for shareholders in a private company to enter into a shareholders’ agreement to regulate their rights and obligations in relation to the company. By setting out what should happen if certain events occur, a well-prepared shareholders’ agreement can give the parties greater certainty, and additional protections and potentially avoid disputes later on.
Typically shareholders’ agreements cover things such as:
- The scope of the company’s business;
- Reserved matters (decisions or actions that require the approval of all or a certain proportion of the shareholders);
- Dividend policy (to manage expectations as the level of dividends to be paid);
- Share transfer rights (setting out the conditions when a shareholder may be permitted to transfer their shares, what happens on the death of a shareholder or their ceasing to work for the company);
- Restrictive covenants (to prevent shareholders from carrying out activities that compete with the company);
- Confidentiality obligations (obliging the parties to keep information relating to the company and each other confidential)
Shareholders’ agreements are however relatively flexible documents that can also address a wide variety of other issues.
If you are presented with a shareholders’ agreement that someone else has prepared it is advisable to obtain advice on the implications to check that you are not being unduly restricted or giving up rights which might otherwise wish to retain.
We are experienced in preparing, advising on and negotiating shareholders' agreements and can assist in putting in place a document that is right for you.
When contemplating a shareholders’ agreement, at the same time it is often worth considering whether the articles of association need to be amended or if any of the directors should enter into a director’s service contract.