The importance of a Shareholders Agreement.

Anneka Traynor, KBL Solicitors

A Shareholders’ Agreement documents the rights and obligations between a company’s Shareholders.  The effects of not having one or indeed relying on an out-of-date document can be disastrous.

Without a shareholders agreement the Company’s articles of association (filed at Companies House) govern what counts as a valid decision (for example, the directors may have full authority with decisions made by majority vote).

Company owners can use their shareholders agreement to legally bind each other to prevent decisions being made without the consent of all parties.  They can set parameters on dividend policies and borrowings and provide for what should happen if:

  • A shareholder exits (i.e. the agreement could cover an agreed formulae for share valuation and restrict exiting shareholders from setting up a new business in competition or divulging confidential information about the Company’s business).
  • A shareholder dies (i.e. the other shareholders could be obliged to purchase the shares).

Consider whether your Company’s constitution reflects what you want to happen to your shares in the event of your death? Does it need updating so that different rights (dividend, capital or voting) are attached to particular classes of shares or to prevent a situation where an offer is received for a controlling interest in the shares in your company but the other shareholders refuse to sell?

Conflict, when shareholders disagree on an issue, can have a detrimental impact on a business.  This can be greatly reduced by having a bespoke and robust shareholders agreement in place detailing how conflicting situations will be managed and resolved.  It is also important to ensure the articles of association are aligned with your shareholders agreement to make certain they work together and avoid costly disputes.

To discuss the benefits of a shareholder’s agreement please call Anneka Traynor in our Corporate & Commercial team on Bolton 01204 527777, Blackburn 01254 268790 or email

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