Do I need a shareholders’ agreement?

Ince

Written by:

Therese Grech

Partner and Corporate Director (Cardiff)

Ince

If you are a shareholder of a company with several shareholders, it is advisable to have a shareholders’ agreement drawn up. A shareholders’ agreement is a contract that establishes the relationship that shareholders have with each other and with the company. The shareholders’ agreement, as well as the articles of association (“the articles of association”), constitute the constitution of the company.

It is not compulsory to have a shareholders’ agreement. In this article, Theresa Grech, Partner and Head of Business at Ince (Cardiff), describes a number of key benefits of entering into such an agreement.

Provides certainty and stability

Most companies adopt model articles of incorporation (called “model articles”) which do not contain any specific restrictions on the transfer of shares.

Without such restrictions, a shareholder is free to:

  1. Transfer his shares to anyone, with the risk that he decides to transfer his shares to a person unknown to the other shareholders; Where
  2. Transfer their shares to a competitor.

This can introduce uncertainty into the operation of the business and disrupt the smooth running of the business. Therefore, clauses are often included in the shareholders’ agreement to ensure that if a shareholder wishes to transfer their shares, they must first offer the shares to the remaining shareholders of the company. If the other shareholders do not wish to buy the shares and are happy that they will be transferred to a third party, the shareholders ‘agreement may provide that any new shareholder must comply with the terms of the existing shareholders’ agreement by entering into this agreement. is known as an “act of accession”.

Impose restrictions

The shareholders’ agreement may impose restrictions on natural persons as long as they are a shareholder of the company and / or for a certain period after they cease to be a shareholder of the company. For example: shareholders may be prohibited from engaging in activities that compete with the activities of the company or that attract customers or employees of the company.

In general, the restrictions can be more stringent than similar clauses that can be inserted into an employment contract, so they can prove very useful to a company in the event of a break-up of shareholders and if an exiting employee shareholder decides to leave. install in competition with the activity of the company. business.

A confidentiality clause can also be inserted in the shareholders’ agreement so that shareholders do not use or transmit confidential information to the company’s competitors. These confidentiality restrictions may apply during the term of the Shareholders’ Agreement and after its termination.

Provides protection

The shareholders’ agreement can offer protection to all shareholders, whether they are minority or majority shareholders.

For minority shareholders, it ensures that certain key decisions require the unanimous consent of all shareholders, and not just a majority or 75% of the votes (as required by the articles of association and / or the Companies Act 2006). This means that minority shareholders will have veto power over certain key decisions.

In addition, an accompanying clause could be included in the shareholders’ agreement, so that in the event that a majority shareholder decides to sell his shares, such a clause would allow minority shareholders (holding less than 50% of the share capital ) the possibility of participating in the sale at the same time and at the same price (that is, they can “accompany”).

For majority shareholders, a “hang around” clause could be included. Consequently, in the event of an offer from a third party to buy all of the issued share capital of the company, the minority shareholders may, in effect, be “drawn” and forced to accept the offer of the third party and sell. their shares on the same conditions as the majority shareholder. It should be noted that “accompanying” and / or “training” clauses may be included in the articles.

settle disputes

It is foreseeable that during the operation of the business, the shareholders and / or directors may disagree on certain matters relating to the business. Litigation can be long and costly. Thus, the Shareholders’ Agreement can be a useful tool for managing these disputes if they arise and includes various provisions to deal with them.

Need more information and advice?

For more information and advice on shareholder pacts from our corporate legal team or advice on setting up a business through our corporate secretarial service, get in touch with a member of our team below:

Theresa Grech, Partner and Head of the Company, at [email protected]; Where

Melanie Kincaid, Business Support Services Manager, at [email protected].

The above information is not and should not be construed as legal advice. You must not take any action or fail to take action based on this information.


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