A Shareholders’ Agreement is for the benefit of shareholders (and possibly directors as well) of a private limited company. There is an equivalent for an LLP (Limited Liability Partnership) which is an LLP Members Agreement.
Points for Consideration
Do I need one? That is a question that only you can answer but we would suggest that the answer is “probably”.
Depending on the number of shareholders and directors please consider the following:
- Shareholders and directors will vote on very different subjects;
- Shareholder votes will be based on their shareholding percentages whereas directors will vote on a one vote per director basis.
- Whether the existing articles of association of the company are adequate for your needs. For example, do you want the chairman of a directors’ or shareholders’ meeting to have a casting vote on certain decisions?
- Is it possible to “fudge” directors and shareholder votes? This will not be for everyone but it is a possibility and should be thought through.
- Do you need tag along rights/drag along rights? This would depend entirely on the number of shareholders but if yours is a company with equal 50/50 shareholdings, the answer is almost certainly “no”. However, the option should be considered if only for future reference.
- Do you need to differentiate between contributions and obligations imposed on shareholders and directors?
- Should there be a dividend policy? Again, depending on the set up of the company the answer is “probably” but much will depend on circumstances. However, bear in mind how useful this could be as a default position as the rules in the Companies Act 2006 will regulate whether a dividend may lawfully be paid from time to time rather than whether it should be, which is frequently as much a political decision as anything else.
- Deadlock and Resolution: this provision will be of no use on a daily basis, however if circumstances should deteriorate or the relationship break down altogether then it is sensible and very useful to have a standard objective “deadlock busting” mechanism in place should the relationship between the relevant parties break down altogether”. It is not designed to be attractive, on the contrary it is designed to create a “deadlock mindset” through which hopefully deadlock will be avoided.