Is your business protected by a shareholders’ agreement?

By Anita Jaynes on April 04, 2019

Iain Mason, Head of Property Legal Services at Swindon-based Optimum Professional Services discusses the importance of a shareholders’ agreement.

Iain Mason, Optimum Professional Services

Much is made in the media of the fact that some 60 per cent of adults don’t have a will. Cases appear in the press all the time about arguments over a deceased person’s estate because no will was in place.

Prince, Philip Seymour Hoffman, James Gandolfini, Amy Winehouse, Heath Ledger… they all died intestate, and disputes arose as to who would inherit. 

Far less is made, though, of an equally important document – a type of ‘will’ for shareholders – and that is a shareholders’ agreement.

Recently, clients of ours sought our advice on a shareholders’ agreement, but they are among the enlightened few. The owners of many businesses simply rely on the company’s standard articles of association, but business owners may not be fully aware of how these operate, or whether they reflect their own specific requirements. 

Company directors might assume there is a level of trust and so there is no need to put in place something like a shareholders’ agreement. They might even feel awkward about raising the possibility, in case it’s inferred they lack trust in their fellow business owners.

However, even family members and best friends fall out and a relationship can break down, and other unforeseen circumstances could also arise. For example, a shareholder could fall ill or die , they may move away and no longer want to be part of the business, they may even simply want to retire!

Circumstances often change unexpectedly, and while it is impossible to plan for every scenario, a shareholders’ agreement will stipulate what happens in certain cases and act as a safeguard for all owners and the business. 

For example, if one of the shareholders dies, what then happens to the company? Their shares will become part of the estate and pass to their beneficiaries, perhaps their spouse or children: do the fellow investors want them to have a stake – or even become decision-makers – in the business? Similarly, what if shareholders fall out, or one of them wants to move on or retire? Should the other investors have a right to demand that the shares are offered to them first? 

A shareholders’ agreement will:

• set out the shareholders’ rights and obligations

• regulate the sale of shares in the company

• describe how the company is going to be run

• provide an element of protection for minority shareholders and the company

• define how important decisions are to be made.

Many businesses with a shareholders’ agreement will never need to rely on it. However, there will be many more cases where shareholders wish they had taken the time to put a proper agreement in place.

At Optimum, we can draw up a shareholders’ agreement to protect business owners and the business.

For more information, please get in touch with the legal team at Optimum Professional Services. Optimum has recently relocated to new premises at Vicarage Court, Ermin Street, Stratton but all contact details remain the same: email info@optps.co.uk, phone 01793 538198 or visit www.optps.co.uk