Shareholder Agreements

A shareholder's agreement is a contract between the shareholders of a company in which they agree how the company will be run.

When you set up a company Articles of Association are required by law, setting out the rules that you have to follow in the running of a company. These are standard and will usually be supplied by the formation agent.

A shareholder’s agreement is much further reaching and tailored to meet the needs of your business and its investors. A well drafted shareholder’s agreement will cover the following areas

• shareholders’ rights and obligations
• regulate the sale of shares in the company
• describe how the company is going to be run
• provide a degree of protection for minority shareholders and the company
• set out the decision making process for important matters
• deadlock resolution procedure

A shareholder’s agreement is effectively a ‘pre-nup’ something you realise you need in retrospect. The absence of a shareholder’s agreement can leave shareholders exposed if ‘things go wrong’ and can result in potentially lengthy, costly and reputation damaging disputes.

A Technology start up can become a prime acquisition target before the business has generated any income. It is imperative to have a shareholder’s agreement and a robust corporate structure established prior to entering into negotiations to sell your technology company. Your shareholder’s agreement will be one of your most valuable investments.

We strongly recommend that shareholders draw up an agreement at the time of setting up a company. It is a more cost effective to draw up an agreement at the start of your business relationship, by putting in place the necessary safeguards for the future of the business, its shareholders and your investment and so avoiding any protracted legal wrangles if disagreements arise.