Find out what a shareholder's agreement is
A shareholder’s agreement is an agreement between the shareholders of a company which is intended to regulate the relationship between them. A shareholder’s agreement is different to a company’s articles of association and, as a general rule, it does not need to be filed with Companies House.
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Shareholder agreements are particularly useful in startups as matters, such as determining the process for how a shareholder can leave the company and how to resolve disputes, can be discussed and agreed in advance whilst there is no pressure on the parties.
A shareholder agreement will usually set out the rights, obligations, responsibilities and liabilities that each shareholder has. The agreement will often deal with issues such as decisions which require the agreement of either all or a specific majority of shareholders, what happens to shares (and how shares will be valued) when a shareholder wants to leave the company or if they die or become bankrupt.
The agreement may also include provisions for what happens if the shareholders want to sell the company. The agreement may also impose restrictions on shareholders, in particular, their ability to start a competing company. It can also provide a system for resolving any deadlocks in decision making.
The main aim of any shareholder’s agreement is to ensure the shareholders are aware of their rights and responsibilities and to prevent issues before they arise. They are essential for any startup and will become one of the most important documents throughout the life of the company.
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