Shareholders’ Agreement in the United Kingdom
3E Accounting advises protecting your shareholding interests with a well-drafted shareholders’ agreement in the UK.
A shareholders’ agreement in the UK aims to provide protection for all shareholders in a company. Its primary aim is to clearly define the relationship of shareholders between themselves and to the company. It is a necessary ‘shareholder manual’ to have as it ensures clarity and avoids misuse of shareholder voting rights.
Entrenching the Rights of Shareholders
A shareholders’ agreement is not a statutory requirement in the United Kingdom but is one that you are well-advised to get. It provides stability and competence towards the running of the company, and clarity and assurance for shareholders of their rights.
In essence, a shareholders’ agreement is a legally binding contract between all the shareholders in a company. The agreement sets out terms agreed upon by the shareholders on how the company’s business should be managed and run.
The primary aims of a shareholders’ agreement will stipulate:
- When directors should consult shareholders.
- Precise clarification of shareholder rights.
- The conditions of when shares can be transferred.
- Ensuring all stakeholders’ objectives are aligned.
As such, most shareholders’ agreements tend to protect minority shareholders against the majority. Majority shareholders have 51% of the shareholding and can use this to push through ordinary resolutions at shareholder meetings. The stark truth is that without a shareholders’ agreement, the majority of shareholders control the company.
A well-drafted shareholders’ agreement ensures this does not happen. Control can be shared rather than automatically vested in those with most of the voting power. This constraint of power is crucial, for example, if some shareholders vote to issue more shares or appoint new directors, etc.
Drafting a shareholders’ agreement should be done by experienced professionals to ensure that it includes all pertinent matters. It should also add to a company’s constitutional documents. In this respect, firms such as 3E Accounting can help draft an agreement that complements a company’s articles of association.
A typical shareholders’ agreement will have some of all or all of the following provisions:
- Confer the right for shareholders to be appointed or removed as directors.
- Incorporate veto rights or give minority shareholders more rights.
- The right to issue more shares, with the first option to purchase is given to shareholders themselves.
- Share transfer rules, including what happens when a shareholder dies or becomes incapacitated.
- Varying the nature of a company’s business activity.
- Dividend policy and rules for changing this.
- Specific management decisions, including voting on certain decision-making processes.
- Borrowing more than the previously agreed amount and other financial matters.
- More complex issues relating to the sale of shares by the majority shareholders such as:
- Drag Along: compels all minority shareholders to sell.
- Tag Along: majority shareholder cannot sell unless the same offer is extended to other shareholders.
Hence, getting the provisions of a shareholders’ agreement in the UK precisely right is crucial to avoid harming the company. 3E Accounting is ready to assist with a team of highly skilled experts and impeccable professionalism. Along with our partners and affiliates, we offer innovative business solutions which are customisable to your every need. Contact 3E Accounting today to work with global professionals who have the right skills, talents, and expertise.