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Do I need a shareholders’ agreement?
September 2022

A shareholders’ agreement is a legal contract between the shareholders of a company, and usually, the company itself. The contract sets out matters that have agreed between those parties and will often include matters such as: how decisions will be made; how shares can be transferred or sold; the policy on payment of dividends; restrictions on the shareholders (such as non-compete or non-solicitation provisions); and many other prominent issues. The agreement can also provide protection to minority shareholders and majority shareholders.

A shareholders’ agreement imposes personal obligations on the shareholders entering into it. It also gives them personal rights, including the right to sue under that agreement for a breach of its terms by another shareholder.

Another important aspect of a well-drafted shareholders’ agreement is appropriate dispute resolution provisions. Business partners set out with good intentions and, hopefully, a business plan; however, despite good intentions, there may be times where disagreements occur between the shareholders of a company. If well-drafted, a shareholders’ agreement will often include a dispute resolution procedure, which the parties may exercise where relationships have broken down. If well-drafted by a specialist corporate solicitor, those provisions should give the parties a structured plan for resolving their disputes in what are likely to be stressful circumstances. This not only helps to preserve the relationship of the parties but, hopefully, also helps to avoid lengthy court proceedings.

If I have a shareholders’ agreement, do I need bespoke articles of association?

Whilst there will be considerable overlap between bespoke articles of association and a well-drafted shareholders’ agreement, it is important to ensure that your company’s articles of association are consistent with the shareholders’ agreement. Doing so ensures there is no uncertainty or conflict between the provisions of the two documents; it also ensures adequate remedies are available to the shareholders (and the company) in the event of a breach.

Every company in England and Wales is governed by the Companies Act 2006. A company’s articles of association are an extension of the Act and, together with the shareholders’ agreement (if one is in place) regulate and govern your company’s dealings and the relationship between the company, its directors and shareholders.

A key distinction between a company’s articles of association and a shareholders’ agreement, though, is the public nature of a company’s articles. Articles of association are a public document, readily available for anyone to read (free of charge) at Companies House, including on the Companies House website. It may therefore be the case that you want to include a provision in your company’s governing documents that you want to keep private. In that case, the shareholders’ agreement is an appropriate place to include such provisions. Furthermore, the way in which a claim is brought for a breach of the company’s articles of association, and a breach of the shareholders’ agreement, are different and it may be that one claim is easier to achieve that the other. It is therefore useful to have a range of options available, rather than being limited to a claim under the company’s articles of association only.

Find out more

If you would like to discuss your company’s articles of association, an existing shareholders’ agreement, or the preparation of a new agreement, speak to one of our specialist corporate solicitors today on 01244 310 022 or at law@jolliffes.com

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