- Length:19 pages (5060 words)
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About this shareholders’ agreement
A shareholders’ agreement is an essential document for "partners" in a joint venture that will be structured through a company, particularly if contributions of time and money are not in equal proportions.
The shareholders may or may not be directors. Their contributions by way of loans may be different. One or more may work part time or not at all. One may be a “hands off” lender.
There are two essential reasons for having a shareholders' agreement:
The first is to protect minority shareholders' rights and investment value. Without an agreement, majority shareholders may force issues that are not in the minority shareholders' interests and that could reduce the value of the minority shareholders' interests in the company.
The second is clarity of decision making. The shareholders with most shares are able to dictate what happens. A shareholders’ agreement changes that by re-balancing powers to a formula that satisfies the worries of everyone, be he director or shareholder and whether he has lent money or not.
Having a clear agreement in place reduces the likelihood of disputes and makes resolving any that do occur easier. This shareholders' agreement protects the interests of the minority shareholders and provides a detailed framework of freedom for working shareholder-directors.
The law in this shareholders’ agreement
The law in this shareholders' agreement is based on both company law and commercial contract law. However, you do not need legal knowledge to decide how to deal with the options we give you in this agreement. It is simple and straight forward.
When to use this shareholders’ agreement
This agreement is suitable for any private company, no matter what its business. It is about rights, power, control and safeguards.
A company’s shareholders’ agreement can be redrawn at any time, but is commonly done when the relationship between the shareholders and the directors changes.
For a new company or one acquired from outright from other shareholders, it can be put in place from Day 1, or shortly afterwards. The best time is always “now”. Clarity on how decisions are made will let you sleep better at night, whether you hold a small proportion or a large majority of the shares.
Shareholders’ agreement features and contents
In many areas, we give you complete alternative paragraphs and explain in the notes when each will be the most suitable for you.
This document contains commercial paragraphs as well as what you might call technical legal provisions. You can choose which are suitable for your needs. Many are based on our practical experience as solicitors of dealing with shareholder disputes. Examples of these provisions are:
- obligations of the company to the shareholders (the company is also a party to the agreement);
- how shareholders will maintain their rights if they are not present at meetings;
- roles of directors and actions by the company or a director which require shareholders’ consent: controls and redistributes power between shareholders so that majority shareholders cannot force decisions;
- new shareholder rights and restrictions: even if he is a trustee in bankruptcy;
- how to deal with new intellectual property;
- transfers of shares and rights of pre-emption: when allowed, under what conditions and to whom;
- exit strategy: particularly important for defined projects;
- key man insurance;
- publicity about the deal;
- use of a shareholders own assets in the business;
Other versions of this shareholders agreement
We have four other shareholders agreements for more conventional, long term businesses. All are designed for a private company in any business with any number of shareholders, some of whom will be directors. All assume that some shareholders will work in the company, but that is not essential.