Shareholder Agreement Solicitors

A Shareholders Agreement is a private agreement between the shareholders of a limited company.

A Shareholders Agreement governs the relationship between the shareholders and dictates what will happen to a shareholder’s shares in certain situations. A Shareholders Agreement can also set out management duties and responsibilities between the shareholders.

A Shareholders Agreement is a bespoke and important document that governs the relationship between the shareholders of a limited company. Commonly a Shareholders Agreement will set out what is to happen to a shareholder’s shares if, for example he/she becomes seriously ill and is no longer able to participate in the day to day running of the business as a director, a shareholder dies, or simply decides to sell their shares. Usually a Shareholders Agreement will set out what happens to a shareholder’s shares and who they can be sold to in the event that one of the shareholders wishes to sell his/her shares.

In addition, a Shareholders Agreement can contain other clauses tailored to suit the needs of the shareholders of a particular company for example a dividend policy, a management clause setting out the obligations of the shareholders for example as directors, drag along or tag along clauses as well as other key provisions relating to the running of the company.

When a Shareholders Agreement is prepared, the company’s Articles of Association should be carefully checked to ensure that there are no provisions within them that conflict with the Shareholders Agreement.

A shareholders agreement can help set out the rights and obligations of a shareholder in relation to both management of the company and protection of their rights as shareholders. A shareholders agreement can be a cost effective way of regulating relationships so as to reduce the possibility for dispute, but setting out ways in which certain decisions will be taken. Ultimately a shareholders agreement can be a means of protecting each shareholder's financial interest in the company, as well as the interests of shareholders families in the event of death or critical illness.
When preparing a shareholders agreement we try to ensure that before we begin work all shareholders have discussed and agreed the principles that are to be recorded in the shareholders agreement. If there is disagreement on those principles then it may become necessary for each shareholder to be separately advised. More often that not, however, there is sufficient agreement, making separate advice unnecessary.
Shareholders agreements commonly contain drag-along and tag-along provisions. These apply when an offer has been made for the shares in the company, which the majority of shareholders wish to accept. Using drag-along provisions, the majority can 'drag' all minority shareholders with them into the sale, so that all the issued shares in the company are sold to a buyer at the same price per share. Tag-along rights enable minority shareholders to insist that their shares are also sold at the same time and at the same price per share that the majority shareholders have negotiated, so that they can 'tag' along in the sale.
Pre-emption rights are, in effect, rights of first refusal. These specify to whom any shareholder who wishes to sell his shares must first offer those shares.