What should I consider in a shareholder agreement?

When people go in to business together they do so with the best intentions, with plans to remain fair and loyal partners throughout and beyond the duration of the partnership.  However, sometimes things go wrong, relationships sour, and one’s perception of fairness and loyalty can become tainted.  There are many factors that can change during the course of a business, such as a shareholder’s decision to leave sooner than anticipated, changes in health or personal circumstances, etc., so drawing up a Shareholder Agreement, which is in addition to the standard articles of association, to set out expectations from the outset that will provide a safeguard to protect all shareholders should the situation change.

A shareholder agreement will include, among other things, details of shareholders’ rights, responsibilities and obligations, regulation of the sale of shares, and describe how the decisions about the company will be made.  The agreement may not necessarily apply to all shareholders, and may only involve holders of a particular class of shares, but it should include consider protection for minority shareholders.

It is likely that some restrictive covenants will be included to prevent, for example, a shareholder joining a competitor company with the intent of taking clients or knowledge with them.  Unlike such clauses in an employment contract, these covenants are more easily enforceable in a Shareholder Agreement.

While it may be possible to draw up a Shareholder Agreement without employing a solicitor, such an important document requires expert knowledge to ensure that it is accurate and comprehensive, particularly as the content of the Agreement may overlap with other company documents, thus introducing the possibility of confusion or contradiction.

For more information on how Aughton Ainsworth can support you in drawing up a Shareholder Agreement, please contact John McMuldroch at johnmcmuldroch@aughtonainsworth.com.