Shareholder agreements: settle it while everyone still agrees

A company can be incorporated in a matter of days. Deciding how the people behind it will actually work together takes longer, and it is the part most often left for later.

A shareholder agreement answers the awkward questions while the answers are still easy. It sits alongside the articles of association and governs the relationship between the shareholders themselves.

Who decides what

Some decisions belong to the directors, some to the shareholders, and some should require everyone. Reserved matters — taking on debt, issuing shares, selling the business, changing what the company does — are worth listing explicitly rather than discovering later.

What happens to the shares

Transfer restrictions, pre-emption rights, and what becomes of a shareholder’s stake if they leave, die, or simply want out. Without them, shares can end up with people the others never chose to be in business with.

Money

Dividend policy, whether shareholders are expected to fund the company further, and what happens if one of them can and another cannot. Silence on this is a reliable source of resentment.

Deadlock

With two equal shareholders, a disagreement can stop the company entirely. A mechanism agreed in advance — a casting vote, a buy-out formula, an independent tie-breaker — is a great deal better than the alternative.

Leaving

How a shareholder exits, how the shares are valued and over what timescale. Valuation agreed in principle at the start is a very different conversation from valuation argued about at the end.

This article is general information, not legal advice, and it does not create a lawyer–client relationship. Every situation is different. If you would like your own matter looked at, please get in touch.