Business Solicitors Suffolk – Shareholders’ agreements
‘A shareholders’ agreement is a contract entered into between a company and some or all of its shareholders. It can deal with as many aspects of the relationship between the parties as both the company and the shareholders require, including the personal rights and obligations of the shareholders. A shareholders’ agreement should be read in conjunction with the company’s articles of association and together these create internal rules by which a company is governed.
The directors of the company are responsible for the management of its business and are subject to statutory duties. However, as a general rule, they are not required at law to consult the shareholders about decisions relating to the management of the company and its business. In some circumstances, all of the directors are shareholders and therefore this may not be an issue. However, shareholders who are not directors may want to be consulted about and/or have the right to veto certain decisions about the company and its business.
It is possible within a shareholders’ agreement to include provisions reserving shareholders’ rights to make decisions about certain matters relating to the management of the company and its business. An example of this can be entering into large contracts above a certain figure, or appointing a new director.
It is common for a company to offer shares to employees. In the event that an employee/shareholder resigns from the company, he or she will not automatically be required to offer their shares in the company for sale to the remaining shareholders. Shareholders’ agreements can therefore include provisions requiring an employee/shareholder who ceases to be employed by the company to offer their shares for sale to the remaining shareholders.
It is also possible for shareholders to include restrictive covenants which seek to restrict departing employee/shareholders and shareholders from setting up in competition with the company and poaching customers and employees for a period of time after they have ceased to hold shares in the company.
Where a company is owned in equal shares and jointly managed by two individuals, there is a risk that deadlock may arise at both board and at shareholder level. For example, one party may wish to seek a new investment from a third party, while the other shareholder wants to carry on business without the investment from a third party.
Deadlock can be both disruptive and damaging for any business. Shareholders’ agreements sometimes include deadlock resolution provisions which require the parties to use commercially reasonable efforts to resolve any deadlock in accordance with an agreed procedure and timetable. In the event that the deadlock cannot be resolved by negotiation within the agreed timetable, a mechanism will be provided for the compulsory purchase by one party of the other parties’ shares in the company.’
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