News and Events

Don't underestimate the importance of a Shareholders' Agreement

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Once the company has been incorporated, shares allotted and trading has commenced, business owner/managers often fall into the trap of leaving the task of preparing a shareholders' agreement to 'another day' and merely relying on the company's model articles for protection in the meantime. Unfortunately the 'another day' usually only arrives after a shareholders' dispute or proposed exit and by that stage it may be too late to orchestrate an amicable cost-effective outcome.

A shareholders' agreement is a bespoke document to meet the shareholders' particular requirements and will usually cover aspects such as reserved matters requiring specified high majority or unanimous consent, rights to appoint a director, permitted transfers to agreed third parties, e.g. a family trust or group company, pre-emption on the issue of new shares or the transfer of existing shares, keyman insurance for the company's benefit, good leaver/bad leaver and deadlock provisions.

In addition to being a more flexible document in terms of content, there are other differences between the articles and a shareholders' agreement including:

  • Protection against amendment: the articles will usually specify a majority or default to the statutory 75% (special resolution) to amend it, whilst a shareholders' agreement can include a unanimous consent provision before it can be amended;
  • Privacy: the company's articles of association are required to be filed at Companies House and as such it is a public document, whereas a shareholders' agreement is a private agreement usually only retained by the shareholders, their professional advisors and the Board;
  • Additional shareholders: the articles of association will govern all shareholders, whereas a shareholders' agreement will only relate to a new shareholder who agrees and signs up to its terms, usually by way of a deed of adherence.

If you are an owner/manager in a multi-shareholder company currently trading without a shareholders' agreement in place and you would like to discover more information about their benefits, please do not hesitate to contact BakerLaw's head of Company Commercial Jonathan Craig at or 01252 730 754 for further information. Please note that all initial consultations are conducted on a no obligation, no cost basis.