Why you should have a shareholders agreement


Why you should have a shareholders agreement

A shareholders agreement is one of the most important documents a privately owned company should have.

It will set out the rules, obligations and responsibilities of the shareholders, their relationship with each other and their relationship with the company both in terms of the day to day running of the company and longer term considerations.

The reason for having a shareholders agreement in place is to set out the rules relating to the shares and shareholders in the event that something unexpected or untoward happens to one or more of them.

Putting this framework in place resolves potential issues/disputes before they happen and enables shareholders to work through an agreed process rather than having to decide how matters will be resolved when disputes arise.

Some of the main issues that a shareholders agreement can deal with are:

Disputes: Have a structured process to work to in order resolve a dispute and answer the question “What happens if we don’t agree?”

Selling shares: Without a shareholders agreement in place, a shareholder may be able sell their shares to anyone, even a competing company. A shareholders agreement can give shareholders the right of first refusal should any shareholder wish to sell their shares. If nobody takes up this right, the shares can then be offered to third parties who are approved by the shareholders. A formula for working out the sale price for shares can also be included in a shareholders agreement. This could be another area for potential conflict and can be easily resolved if a valuation formula already exists.

Divorce: Will your shares automatically transfer to an ex-spouse if you get divorced? Without a shareholders agreement this could be a very real problem and the remaining shareholders could be left with a shareholder who does not have the best interests of the business at heart.

Death/Incapacity: Without an agreement to the contrary, shares may automatically transfer to the spouse of a shareholder on their death. A shareholders agreement can provide for a right of first refusal for the remaining shareholder. All parties should also have up to date wills that work alongside and mirror the shareholders agreement and articles of association of the company.

Finance/Contracts: Who has the authority to spend or borrow money on behalf of the company? Who can enter into contracts on behalf of the company? Without a shareholders agreement in place any shareholder could make such commitments on behalf of the company without agreeing this with the other shareholders.

General: The contents of a shareholders agreement will be different for every company and are necessary whether it is a new company or one that has been established for many years. Each agreement can be bespoke and tailored to the needs of the parties involved.

Contact Gideon Cristofoli today on 01420 82881 or email gideon@bookersandbolton.co.uk for more advice.


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