This agreement is a contract made between shareholders in a limited liability company. It set out how they will resolve deadlock decisions, appoint directors and manage other key aspects of the business. For use in the UK.
A Shareholders Agreement is a written agreement made between two or more shareholders in a limited liability company. Such an agreement is used to regulate aspects of the how the company is managed and to protect the rights of minority shareholders. It can cover things such as: positive obligations, rights of veto, the issue and transfer of shares, appointment of directors, and dispute resolution.
Positive obligations are statements of how the parties agree to use their voting rights in a way that benefits the company.
Rights of veto
Rights of veto are used to give each shareholder the ability to veto certain decisions by requiring unanimous agreement. This can be used to protect the interests of minority shareholders. The rights to veto is typically applied to significant decisions involving the company's structure including:
- the issue of further share capital
- borrowing above a certain leel
- buy-back of company shares
- taking action to wind up the limited liability company
- changing the articles of association
- buying or selling premises.
Appointing board members
The agreement will often allow for each shareholder have a representative on the board of directors and to be able to remove and replace their director whenever they want. This allows shareholders to protect their interests in the business by having someone they choose on the board.
Deadlock is the situation where the shareholders cannot reach agreement on how to resolve a particular business issue. In the absence of a written agreement, there may be no clear way forward and the business and personal relationships between the shareholders may suffer. A formal agreement between the major shareholding parties (such as this one) can include details of how to resolve disputes to help ensure the smooth running of the business.
Does my business need a Shareholders Agreement?
There is no legal obligation to have a written agreement between the shareholders but many limited liability companies do. Here are some of the reasons why you might want to have a shareholders agreement for your business:
- deadlock - your business may suffer if you reach deadlock without an agreed way to resolve such matters
- minority shareholder rights - if you are a minority shareholder then you may want to make sure you have a right of veto
- positive obligations - you may want to ensure that all voters use their voting rights, on certain key issues, in a way that benefits the company
- appointing directors - you may want to ensure that you have a representative on the board of directors and the right to replace them.
Our template agreement covers these issues.
This document is suitable for use in the UK (England, Scotland and Wales) and includes clauses covering:
- company details
- shareholder details
- the nature of the business
- directors' meetings
- management decisions
- appointment of directors
- transfer of shares
- dividend policy
- winding up
- no assignment