Understanding the Importance of Shareholder Agreements

Why Do I Need a Shareholder’s Agreement?

When your limited company has two or more shareholders, regardless of who they are, a shareholder agreement is a crucial document that sets out the rights and responsibilities of all the shareholders within your company. It may even involve investor shareholders with agreed provisions stipulating when the investor is no longer needed and therefore no longer a shareholder.

Planning for the Future: Implementing Exit Strategies

Considering Exit Strategies

You might think that you and your shareholders will be around for the lifetime of the company. However, that is not the case, and you should consider some of the reasons why your shareholders may leave and what will happen when they do. A good business plan will always consider an exit strategy. After all, no one lives forever, and no one certainly wants to work forever.

Common Reasons for Shareholder Departure

Even with the best intentions and a planned exit strategy, there are several reasons why shareholders may leave the company early:

  • Termination of employment or conflict
  • Shareholders wanting to part ways
  • No longer wanting the responsibility or reaching retirement
  • Health reasons or death

Navigating Shareholder Dynamics

Many UK businesses are formed by friends with a common aim or in families. Over the timespan of a business, shareholders and their priorities can change and no longer align with one another. It is unlikely that all shareholders will agree on the direction the business is moving in or that they are as committed as they once were as life evolves and changes. There are also common disputes amongst shareholder where one may believe they work harder than the others, or one may disagree with the size of another director’s loan account or how much pay they are taking, or they may simply just no longer get on.

Ensuring Smooth Transitions: The Role of Shareholder Agreements

Key Considerations in Shareholder Agreements

A shareholder’s agreement can be drafted at any time and at any age of your company, and you may not have thought about exit strategies at all but when that time comes it’s important to understand:

  • Who the exiting shareholders must offer their shares to in the first instance?
  • At what price should the shares be sold, and how is the valuation of the shares determined?

The Importance of a Well-Drafted Agreement

A well-drafted shareholder agreement should set out what will happen in the event of a dispute and provide the method for the removal or exit of a shareholder. This can save time and money, preventing litigation and further conflict, while ensuring provisions are in place to protect the company when a shareholder leaves.

Flexibility and Adaptability

A well drafted shareholder agreement should set out what will happen in the event of a dispute, and provide the method for the removal or exit of a shareholder. This can save a heap of time and money preventing litigation, further conflict and ensures there are provisions around protecting the company when a shareholder does leave.

A shareholder’s agreement is also a private document that can be amended by mutual consent between the parties as the business grows. It also compliments a loan agreement and any directors service agreement you may consider getting drafted.

Next Steps?

If you want to discuss shareholder agreements further, please contact us today. We can draft a shareholders’ agreement tailored to your exact requirements while explaining exactly what it means to all involved.

BEB are contract law specialists based in Northampton. We draft bespoke and well written business contracts on a fixed price basis.  Our legal packages offer flexibility depending on the number of documents you require.  Whether you require a business to consumer or business to business contract we are here to help!

We are contract drafting and contract review providers.  We can advise and negotiate all contracts to protect you from unfair terms and conditions as well as support you with any ongoing contractual issues – we would be like your very own comprehensive in-house legal department.

We also offer debt recovery services, relieving you from chasing late payments and improving your cash flow.

If you need any of these legal and contract services get in touch with us today on 01604 217365 or info@bebconsultancy.co.uk


Free Resources 

Small Business Owners Guide to Contracts

The Write Up Monthly Mail

The Construction Lingo Guide

The Construction Review Checklist

Shareholder Agreement blogs