A Shareholder Agreement is something akin to the rules of the game of being in a company with other business partners. It is not compulsory and is not a legal requirement of being in a company. It does not need to be registered at Companies House. It is a private contract between the shareholders, setting out the rules to be followed in certain situations in the life of a company.
“Do not pass go. Do not collect £200.”
As anyone who has attempted to play monopoly with their family members will know, not all games end well. Sometimes, building an empire doesn’t bring people together.
A Shareholder Agreement manages the relationship between the company owners and provides a framework for handling potentially awkward situations. It is a bit like a Living Will for a company. For example:
- if one of the shareholders wants to leave the company, the Shareholder Agreement can ensure his shares are offered to the other shareholders first, before being put up for sale on the open market;
- if an offer is received to buy the company, the Shareholder Agreement can ensure that all shareholders need to agree to sell their shares, otherwise the sale will not be permitted to take place;
- at the end of the financial year, the Shareholder Agreement can set out how much of the profit will be reinvested in the company and how much should be distributed among the company owners.
Each of these issues could arise during the lifetime of a company. A Shareholder Agreement is a good way of settling on a course of action before things become emotive and personal, setting everyone on the same footing.
Just like a Will, you don’t have to make one by law. But unlike a Will, you will likely still be around to suffer the mess that is left if you don’t have a Shareholder Agreement when something unexpected happens between you and your business partner.
A Shareholder Agreement is the best way to make sure that things are sorted out smoothly in the future.
If you are ready to put in place a shareholder agreement contact us to get started today.