Do you need a Shareholders Agreement?

In this life, nothing is ever certain. ‘Gentlemen’s agreements’ and trusting others to ‘do the right thing’ have no place in business. If you just have this type of verbal understanding with your colleagues, you will risk being let down simply because everyone has different priorities and will not necessarily act as you would in a given set of circumstances.

If a Shareholders agreement does not exist, then any disputes between shareholders/directors will have to be resolved by what is contained in the articles of association. These give the division of shareholding and the rights each shareholder will have. Relying on standard articles of association may leave you with problems such as difficulties in resolving deadlocks.

The shareholders agreement gives a contractual remedy if its terms are broken. It provides the owners of the business with a legal framework as to what is to happen, for example when:

• You fundamentally disagree on the direction of the company
• What happens when a shareholder wishes to leave
• What happens on the death of a shareholder
• Determining the rights and responsibilities of minority shareholders

In real terms, the more that you can set out in an agreed legal document can save you time, money – and heartache – further down the line.

Talk to us about whether drawing up a shareholders agreement is appropriate for your company – this is a service we can provide at any stage during your company’s lifetime.