Have you watched the film “The Social Network”?
If you share the ownership/management of your limited company with other shareholders who may have a say when it comes to making company decisions then you really need to consider drawing up a Shareholders Agreement.
This is something that many smaller companies fail to do, perhaps because they don’t see a need, don’t understand what they are for or are putting this off as it isn’t seen as a priority.
But this “failure to implement” is something that many business owners come to seriously regret when the proverbial hits the fan! It can be very expensive to resolve company disputes that may arise through the courts and many of the most common issues can be avoided by setting out agreed actions and rules in a Shareholders Agreement.
If you are not convinced, then I would urge you to watch the film “The Social Network” about how Facebook came about, which can be an eye-opener in demonstrating how a shareholder can be disadvantaged by not being sufficiently smart.
So what exactly is a Shareholders Agreement?
A shareholders’ agreement is a contract between a company’s shareholders. It deals with the relationship between the parties, including the personal rights and obligations of each shareholder. A shareholders’ agreement defines some of the key rules which determine how the company is managed and run.
Some of the many areas that can be covered in a Shareholders Agreement include:-
- What happens if a shareholder wants to sell his or her shares? Can he or she sell them to any unknown third party of their choice who may then use the acquired voting rights to exercise control over company policy.
- What happens if some shareholders want to sell the business or merge and others don’t? If the owners are at different stages in their lives this can become a real issue. Assuming there are never going to be any changes to their personal circumstances or outlook is obviously short sighted.
- What happens in the event of deadlock? We have encountered situations where company bank accounts have been frozen because the signatories just cannot agree on policy.Not great for the reputation of a company that needs to pay its suppliers to trade.
- In what situations new shares can be issued which may change the voting rights of other shareholders or shift control of the company.
- In the case of employee shareholders, what are they allowed to do when they decide to leave? You won’t want them to be able to set up their own competing businesses and poach all the company clients.
These are just a few of the areas that can be covered; the best idea is to work with an accountant who is familiar with Shareholders Agreements and can help you draw up a bespoke document which fits with your circumstances and covers all the main bases. This will also need to be tied in to the company’s Articles of Association to ensure that everything is consistent.
If you are at all concerned about this area please get in touch, as our accountants and legal team will be very happy to talk through your options.
We look forward to hearing from you!
About Jon Pryse-Jones
Since joining THP in 1978, Jon Pryse-Jones has been hands on with every area of the business. Now specialising in strategy, business planning, and marketing, Jon remains at the forefront of the growth and development at THP.
An ideas man, Jon enjoys getting the most out of all situations, “I act as a catalyst for creative people and encourage them to think outside the box,” he says, “and I’m not afraid of being confrontational. It often leads to a better result for THP and its clients.”
Jon’s appreciation for THP extends to his fellow team members and the board. “They really know how to run a successful business,” he says. He’s keen on IT and systems development as critical to success, and he continues to guide THP to be at the cutting edge and effective.