Corporate and Commercial
A shareholders’ agreement is an agreement between the individual shareholders of a company, and the company itself, which typically regulates how the company is run, how certain decisions are taken and how certain ‘standard’ situations and events are dealt with.
A shareholders’ agreement can more or less cover whatever issues the shareholders in the company would like it to cover but, usually, it deals with the following main areas:
- Key Decisions: the agreement lists what key decisions should be subject to shareholder consent, and stipulates whether that consent should be unanimous or a stipulated majority;
- Share Transfers: the agreement regulates the circumstances in which a shareholder can (or can be forced to) transfer shares in the company, and sets out the transfer procedure(s) and how the relevant shares are to be valued;
- Administration: often the agreement deals with general administration issues such as how often board meetings should take place, when accounts should be prepared etc; and
- Restrictive Covenants: many shareholders’ agreements also seek to restrict the individual shareholders from becoming involved in a competing business and from poaching/soliciting clients and/or employees of the company.
- Sometimes, several (or perhaps all) of these issues are covered by a company’s articles of association, rather than in a shareholders’ agreement. This is fine in principle – the main drawback is that a company’s articles of association are a public document. As such, if the shareholders want to keep certain issues confidential, those issues will need to be covered in a shareholders’ agreement (which is usually expressed to be confidential between the parties).