Shareholders Agreements & Advice

Are you about to set up a company and become one of its shareholders?

Are you currently a shareholder of a company but there is no shareholders agreement in place?

If the answer is YES to either of these questions then you should consider a shareholders agreement.

If you are on the verge of setting up a new company or are going into business with your colleagues, you would be well advised to enter into a shareholder agreement.

This is a private document setting out how the company should be run, and more importantly it establishes additional rules and procedures relating to the shares held by all those involved. It governs the overall relationship between the shareholders to deal with those key operational matters which are not provided for in law. Our commercial solicitors are experienced in advising and drafting agreements and will guide you through each step of this essential process, as we have done with many other clients across Essex, London and further afield.

Believe it or not, there is no automatic right giving continuing shareholders the right of first refusal if another shareholder decides to sell. This could have significant consequences in a close-knit company owned and run by a small number of individuals. It could mean that the continuing shareholders may have to deal with someone that they didn’t like. In more severe circumstances, it could result in a competitor acquiring an interest. Such concerns can be addressed in a shareholder agreement.

Sometimes shares are promised to employees as an incentive. This can be a great way to encourage participation in decision making and offers a real sense of ownership and responsibility. But what if that individual were to leave the company? What would happen to their shares? Without proper thought and planning, there is nothing that would automatically require them to surrender their shares upon leaving. So they could, potentially, continue to benefit from dividends and have a say in the running of the company long after leaving it.

Often a shareholder agreement is forgotten about or simply disregarded as costly, unnecessary and something to worry about in the future. But the initial cost will almost certainly be less than the time and money spent dealing with a later dispute between shareholders where no agreement has been put in place – our expert corporate solicitors have first-hand experience of dealing with legal cases such as this. Although an agreement can be entered into at any time, it works best when formalised at the outset of a new arrangement. Certainly, it needs to be in place before a dispute has arisen.

Commercial Lawyers

Julian Royle

Senior Associate