A Shareholders' Agreement - Why You Need One - By: Tim Bishop

If you share ownership of a Company with others it is always useful and in many cases essential that you protect your position with a Shareholder Agreement.

What is a Shareholders' Agreement?

A Shareholders' Agreement is a private contract in writing between the Shareholders of a Company - unlike the Company's Articles of Association it does not have to be filed at Companies House and can not therefore be read by anyone.

Understanding what a Shareholders' Agreement can do

A Shareholders' Agreement gives you an increased amount of control over your business in a variety of ways. These include:

- Determining how a new shareholder is able to become a part of the Company

- Regulating the procedure for all shareholders so that their rights are protected and their responsibilities in the Company are specified.

- Deciding how shares are bought and sold and when and by whom, including if you wish those occasions when shares must be sold by an unwilling shareholder.

- Identifying the procedure for the issuing of new shares by the Company.

- Specifying how a shareholding is to be priced when the business is sold, and laying out a procedure for resolving any disagreements over the value.

- Identifying those decisions made in the running of the Company that can only be taken if all the Shareholders agree.

- Regulating both the powers of any Company Directors who do not share ownership of the Company and how these powers are to be exercised for the benefit of the shareholders and the company.

- Laying out a procedure to follow if a shareholder is no longer able to take an active role in an owner-managed business due to ill health.

- Regulating the decision-making process of the company so that it remains efficient, yet requires no unnecessary administration, but also ensures that the shareholders are kept in touch with the business.

- Identifying how any deadlock on a decision to run the company can be resolved. Without such a procedure such a deadlock can seriously damage the business and sometimes cause its demise. A simple procedure in the shareholder agreement can help to allow the owners to find a way out of the deadlock.

Do I need a Shareholders' Agreement now or later?

If you start a business with others and purchase an "off the shelf" company you may think a Shareholders' Agreement is an unnecessary luxury that can wait until profits appear. A decision delayed can often be neglected for ever and the benefits of such an agreement are then unavailable at the very moment it is needed: when owners fall out or want to sell.

A Shareholders' Agreement can, however, be created at any point of a Company's life. It can be reviewed as the business develops and your needs change, and then revised by agreement. It can even be set up with a time limit, say 3 years, after which point you have to renegotiate it.

If you think that a Shareholders' Agreement would benefit you or would like to review one already in place, contact an experienced business law solicitor who will be able to discuss with you exactly how such a shareholder agreement could help your business.

About the Author

Bonallack & Bishop are a firm of Salisbury commercial law solicitors who have extensive experience in preparing Shareholder Agreements. Tim is the senior partner of the firm and has led its expansion by 1000% in the last 12 years. All major and strategic decisions are made by Tim who views himself as a business entrepreneur first, lawyer second.

Article Directory Source: http://www.articlerich.com/profile/Tim-Bishop/62652

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