Importance of having a shareholders’ agreement

by Iain Mason

Published on 11th February 2019

Much is made in the media of the fact that some 60 per cent of adults don’t have a will. Far less is made, though, of an equally important document – a type of ‘will’ for shareholders – and that is a shareholders’ agreement.shareholders' agreement

Recently, clients of ours sought our advice on a shareholders’ agreement, but they are among the enlightened few. The owners of many businesses simply rely on the company’s standard articles of association, but business owners may not be fully aware of how these operate, or whether they reflect their own specific requirements.

What is a shareholders’ agreement

A shareholders’ agreement is a contract between the shareholders of a company in which they agree how the company will be run. They all agree that they will use their voting power in the company to ensure that the terms of the agreement are complied with for as long as they are all shareholders.

Why have a shareholders’ agreement

Circumstances often change unexpectedly, and while it is impossible to plan for every scenario, some can be readily foreseen.

For example, one of the shareholders may die – what then happens to the company? Their shares will become part of the estate and pass to their beneficiaries, perhaps their spouse or children: do the fellow investors want them to have a stake – or even become decision-makers – in the business?

Similarly, what if shareholders fall out, or one of them wants to move on or retire? Should the other investors have a right to demand that the shares are offered to them first?

At Optimum, we can draw up a shareholders’ agreement, which stipulates what will happen in those cases and acts as a safeguard for all owners and the business.

For more information, please get in touch with the legal team here at Optimum Professional Services.

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