Shareholders' agreements from £250.00 plus £43.75 VAT
What is a shareholders' agreement?
What does a shareholders' agreement do?
What are typical provisions to protect shareholders' interests?
What provisions are often included to give the shareholder a say in management?
What about share transfers?
How much does a shareholders' agreement cost?
What is a shareholders' agreement?
A shareholder's 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.
When should a shareholders' agreement be used?
Circumstances vary, but a shareholders' agreement should always be considered
when there are between two and, say, 20 shareholders in a company.
What does a shareholders' agreement do?
Shareholder agreements vary, but the typical agreement is designed to protect
all the parties against a majority using their voting power to the detriment
of the others. Without such an agreement, a company is under the control
of those who hold a majority of the votes at a directors' or shareholders'
meeting. Majority decisions are all very well for day to day matters, but
where something goes to the heart of running the company, or materially
affects the interests of individual shareholders, most shareholders want
to have their say. A shareholders' agreement can specify decisions which
require all, or a certain shareholders to agree.
What are typical provisions to protect shareholders'
interests?
Unless constrained by a shareholders' agreement, shareholders with a simple
majority of votes (e.g. two out of three equal shareholders) have very wide
powers under company law. Without requiring any consent from the other shareholders,
they can appoint new directors (perhaps their friends or family members),
remove any director (such as one of the other shareholders), vote to pay
themselves salaries or fees which other shareholders or directors do not
get or issue more shares (so diluting existing shareholders' ownership of
the company). These are only examples. A shareholders' agreement would usually
constrain these powers so that such things can only be done with the consent
of all the parties or, sometimes, a specified majority of them.
What provisions are often included to give
the shareholder a say in management?
Being a shareholder does not even confer the right to be a director and
that is usually one of the provisions of a shareholders' agreement. Most
agreements will go further by providing a list of management decisions that
require the agreement of all (or a specified percentage of) the directors.
Circumstances vary, but typical provisions relate to matters that are outside
the usual course of the business, such as changing the nature of the business,
entering into unusual contracts or contracts in which a director is personally
interested, extending the company's overdraft (which often all directors
have personally guaranteed), borrowing above agreed limits, employing or
dismissing staff in unusual circumstances or bringing or defending legal
proceedings.
What about share transfers?
One of the most important areas is the rules that apply when a shareholder
wants to transfer his or her shares, and what can happen to them when the
shareholder dies. These can be set out either in the articles or in a shareholders'
agreement. Many companies' articles give the directors a discretion to reject
any transfer by a majority decision. There are many alternative provisions,
such as pre-emption provisions (giving the other shareholders a first option
to buy the shares), free transfers to members of the shareholder's family
or for all transfers to require the consent of all shareholders.
How much does a shareholders' agreement cost?
Cost can vary according to the complexity of the agreement. Our standard
service, which covers most agreements, is very competitively priced at £250.00
plus VAT. This is our total charge in most cases. If complex additional
terms have to be drafted, there may be additional cost, but we would always
advise as to the actual cost before proceeding, and the total is very unlikely
to exceed £500 plus VAT.
For further information contact us. We are here to help