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Entrepreneurs should consider the protection of shareholders on incorporation of the company – the decreased chance of future disputes will likely far outweigh the one-off expense
3 minute read
Published 20 November 2018
A shareholders’ agreement is a contract entered into between some or all of the shareholders in a company. A shareholders’ agreement regulates the relationship between the shareholders – they are most often used to give protection to the shareholders’ investments in the event that something were to go wrong and to establish a fair relationship between the shareholders. Unlike a company’s articles of association or special resolutions, shareholders’ agreements are private documents, and cannot be accessed by members of the public on Companies House. This means that is a useful document in which to include confidential information about the operation of the company.
Often, standard articles of association of a company based on the model articles contained in the Companies Act 2006 will not sufficiently safeguard the interests of the shareholders, and the absence of a shareholders’ agreement will mean that disagreements are, if not more likely, certainly less straightforward to resolve. Entrepreneurs may be more concerned with bringing their business ideas to market as swiftly as possible, and less so with the protection of shareholders on incorporation of the company. However, the decreased chance of future shareholder disputes will likely far outweigh the one-off expense and limited time taken to draft such an agreement.
Provisions frequently included in a shareholders’ agreement
A shareholders’ agreement is not “one size fits all” and should be tailored to the company and to the specific circumstances of the shareholders. However, listed below are a number of common areas that shareholders’ agreements tend to cover:
Recent update
The recent decision in United Company Rusal Plc v Crispian Investments Ltd & Anor [2018] EWHC 2415 (Comm) reaffirmed that a court will apply the usual rules of contractual interpretation (by applying the objective test most recently set out in Wood v Capita Insurance Services Limited [2017] UKSC 24) to a shareholders’ agreement. This should give comfort to those drafting shareholders’ agreements that the court will uphold a clearly worded and coherent shareholders’ agreement.
Should you be incorporating a company, or you have read this article and realised that a shareholders’ agreement would assist you and your fellow shareholders, we offer a bespoke shareholders’ agreement drafting service. Do contact a member of our Corporate team – our details are on the side of this page.
Related content
Longer Reads
Entrepreneurs should consider the protection of shareholders on incorporation of the company – the decreased chance of future disputes will likely far outweigh the one-off expense
Published 20 November 2018
A shareholders’ agreement is a contract entered into between some or all of the shareholders in a company. A shareholders’ agreement regulates the relationship between the shareholders – they are most often used to give protection to the shareholders’ investments in the event that something were to go wrong and to establish a fair relationship between the shareholders. Unlike a company’s articles of association or special resolutions, shareholders’ agreements are private documents, and cannot be accessed by members of the public on Companies House. This means that is a useful document in which to include confidential information about the operation of the company.
Often, standard articles of association of a company based on the model articles contained in the Companies Act 2006 will not sufficiently safeguard the interests of the shareholders, and the absence of a shareholders’ agreement will mean that disagreements are, if not more likely, certainly less straightforward to resolve. Entrepreneurs may be more concerned with bringing their business ideas to market as swiftly as possible, and less so with the protection of shareholders on incorporation of the company. However, the decreased chance of future shareholder disputes will likely far outweigh the one-off expense and limited time taken to draft such an agreement.
Provisions frequently included in a shareholders’ agreement
A shareholders’ agreement is not “one size fits all” and should be tailored to the company and to the specific circumstances of the shareholders. However, listed below are a number of common areas that shareholders’ agreements tend to cover:
Recent update
The recent decision in United Company Rusal Plc v Crispian Investments Ltd & Anor [2018] EWHC 2415 (Comm) reaffirmed that a court will apply the usual rules of contractual interpretation (by applying the objective test most recently set out in Wood v Capita Insurance Services Limited [2017] UKSC 24) to a shareholders’ agreement. This should give comfort to those drafting shareholders’ agreements that the court will uphold a clearly worded and coherent shareholders’ agreement.
Should you be incorporating a company, or you have read this article and realised that a shareholders’ agreement would assist you and your fellow shareholders, we offer a bespoke shareholders’ agreement drafting service. Do contact a member of our Corporate team – our details are on the side of this page.
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