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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 jonathan.craig@baker-law.co.uk or 01252 730 754 for further information. Please note that all initial consultations are conducted on a no obligation, no cost basis.

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