Shareholder agreements for beginners – the five Ws

From an early age – and when learning to write – we are taught to break down every story into sections. This is, of course, invaluable advice to make sure everything you want is included.  And, now as experts, we need to do just that to be able to prepare a Shareholders’ Agreement that works for our clients.
If you’re thinking about entering into a Shareholder Agreement but aren’t sure if you want –or need – to be part of the story, you should consider the Five Ws of the Shareholder Agreement.

Who

Anyone who is a shareholder in a company may enter in to a Shareholder Agreement. Usually all shareholders will be required to sign, as well as any shareholders joining the company at a later date.
While the Agreement doesn’t have to be signed by all members if they aren’t all involved, the provisions set out will only apply to those bound by the Agreement, thus the risk that it may become ineffective.

What

A Shareholder Agreement can set out almost any provisions that are important to the parties.  This might be dividend calculations, restrictions on the board, or matters to proceed by way of unanimous Shareholder agreement only.

Why

There are a number of reasons why members may wish to enter in to a Shareholder Agreement including being able to document the ‘What’, but the main attraction is the privacy of the approach.  Unlike the company Articles of Association, a Shareholder Agreement does not need to be filed with Companies House and therefore it remains private to the parties.

Where

If the Shareholder Agreement is not filed with Companies House, where is it kept?  Each party should have a copy so that they are aware of their obligations but of course, the company is a party to the Agreement too.  The company should retain a copy of the Agreement with its statutory registers so that anyone who comes to inspect the books is aware of it.  This may include investors and potential purchasers of the company.

When

It is possible to enter in to a Shareholder Agreement at any point.  It is often sensible to do this at incorporation, as the Articles of Association of the Company should be drafted so that there is no contradiction between the two documents.  In other cases, developments during the life of a company may make it appropriate to enter in to a Shareholder Agreement at a later stage, such as investors entering the company or shares being allotted outside of a family.
I can help you set up your Shareholder Agreement with bespoke specifications. Get in touch on 0131 557 6966 or email enquiries@oswalds.co.uk

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