Structuring Your Shareholders Agreement (UK)

Note: Want to skip the guide and go straight to the free templates? No problem - scroll to the bottom.
Also note: This is not legal advice.

Introduction

Shareholders’ agreements are crucial for businesses of any size. The Genie AI community template library provides an invaluable resource for companies to draft high-quality legal documents without the need for a lawyer. Doing so not only protects the interests of all involved, but it also ensures that decisions are made in an orderly fashion, disputes are settled fairly and assets managed according to shareholder wishes.

Ensuring the rights and responsibilities of each party is clearly outlined in a shareholders’ agreement, which serves to protect the interests of all shareholders. By setting out these rules, decision-making can be performed with due order and fairness - preventing potential conflicts from arising. Moreover, through this agreement shareholders have control over how their investments should be managed and what use should be made of their assets - again safeguarding their interests.

Ultimately such contracts make sure that should there be a dispute between those involved it can be resolved legally with everyone receiving a fair outcome. Through this process investors have assurance that the company’s assets will be correctly handled and their investments safeguarded from potential wrongdoings or negligence by other partners in business ventures.

In conclusion, having a shareholders’ agreement is essential for businesses of any size as it ensures decisions are made in accordance with best practice and everyone involved has their rights upheld by law if there is cause for dispute over business terms or assets management - allowing investors peace of mind when engaging in business partnerships or collaborations. To find out more about structuring your own shareholders’ agreement check out our step-by-step guidance below; with access to our free template library today you can ensure you’re well prepared when entering into any business venture!

Definitions (feel free to skip)

Parties: People or organizations involved in a legal agreement.
Roles: The duties and responsibilities of each person or organization involved in a legal agreement.
Ownership: The legal right to possess or control something.
Rights: Legal entitlements or privileges.
Obligations: A legal requirement or duty to do or not do something.
Shares: Units of ownership in a company.
Voting Rights: The legal right to cast a vote to determine an outcome.
Duration: The length of time that something lasts.
Termination Rights: The legal right to end something at a certain point.
Amending: Making changes to something.
Dispute Resolution: The process of resolving conflicts.
Election: The process of choosing someone for a role or position.
Removal: The act of taking someone out of a role or position.
Dividends: Payments made to shareholders from company profits.
Winding Up: The process of ending a business or legal agreement.
New Shareholders: People or organizations who become shareholders in a company.
Issuing: The process of creating and distributing something.
Company Decisions: Decisions made by a company or its shareholders.
Information: Data or knowledge.
Liability: The legal responsibility for something.
Distribution: The process of allocating something.
Responsibilities: The duties and obligations of a role.
Sale: The process of exchanging something for money.
Transfer: The process of moving something from one place to another.

Contents

• Identifying the parties involved in the agreement and their respective roles
• Defining the rights and obligations of each party
• Determining the shares, voting rights and other rights that shareholders will have
• Agreeing on the duration of the agreement and any termination rights
• Outlining the process for amending the agreement
• Agreeing on the process for dispute resolution
• Determining the process for handling disputes between shareholders
• Setting out the process for the election and removal of directors
• Deciding how dividends will be paid to shareholders
• Agreeing on the process for winding up the agreement
• Establishing the right to bring in new shareholders
• Outlining the process for issuing new shares
• Documenting the rights of shareholders regarding company decisions
• Defining the information that shareholders are entitled to receive
• Determining the liability of shareholders for company debts
• Creating a plan for the distribution of profits and losses
• Specifying the responsibilities of directors and other officers
• Agreeing on the process for the sale or transfer of shares
• Determining the process for the issuance of additional shares
• Outlining the process for appointing new directors

Get started

Identifying the parties involved in the agreement and their respective roles

• Identify the company that will be entering into the shareholders agreement
• Identify the shareholders involved in the agreement
• Determine the roles of each shareholder, such as director, shareholder, executive, or other roles
• Assign each shareholder a percentage of ownership in the company
• Assign each shareholder a voting power proportionate to their ownership
• Document the name, address, and date of birth of each shareholder

You will know you have completed this step when you have identified each shareholder, determined their roles and ownership, and documented their name, address, and date of birth.

Defining the rights and obligations of each party

• Outline the rights and obligations of both the company and shareholders
• Identify who the company’s directors are and how they are appointed, removed and replaced
• Specify the duties and liabilities of directors, such as a duty to act in good faith and with due care
• Detail the process for shareholder meetings and decisions, including the quorum, voting rights and the required notice period
• Outline the process for issuing new shares and the rights of existing shareholders to purchase them
• Explain how dividends will be paid, if applicable
• Agree how shareholders can transfer their shares and what restrictions will apply
• Outline the circumstances in which a shareholder can be forced to sell their shares
• Define the company’s articles of association and the shareholder’s agreement
• Specify any other terms that the shareholders deem necessary

You’ll know you can check this step off your list and move on to the next step when all the rights and obligations of each party have been identified, detailed and agreed upon.

Determining the shares, voting rights and other rights that shareholders will have

• Agree on the number of shares each shareholder will own, and any voting rights associated with the shares
• Decide whether certain shareholders will have special voting rights, such as veto rights or other forms of control
• Consider if the shareholders should have rights to attend shareholder meetings or receive certain information
• Outline any restrictions on how shares can be transferred or how profits can be divided
• Discuss if shareholders should have the right to pre-emptive rights or the first option to purchase new shares
• Assign other rights, such as the right to appoint directors, to certain shareholders

When you can check this off your list:
Once you have agreed on the number of shares each shareholder will own, and any voting rights associated with the shares, have decided whether certain shareholders will have special voting rights, outlined any restrictions on how shares can be transferred or how profits can be divided, discussed if shareholders should have the right to pre-emptive rights or the first option to purchase new shares and assigned other rights, such as the right to appoint directors, to certain shareholders, then you can check this step off your list and move on to the next step.

Agreeing on the duration of the agreement and any termination rights

• Decide whether the shareholders agreement should be in force indefinitely or have a set duration
• Agree on any termination rights, such as the right to terminate the agreement if certain conditions are met
• Include details of how the shareholders agreement will be terminated, such as providing a period of notice
• Specify how the agreement can be extended, if desired
• Include any provisions for allowing new shareholders to join the agreement

Once you have discussed and agreed on the duration of the agreement, the termination rights and any extension provisions, you can move on to the next step of outlining the process for amending the agreement.

Outlining the process for amending the agreement

• Identify who should be involved in the process of amending the agreement - all shareholders, or just certain individuals.
• Specify the process for amending the agreement and the required amount of notice needed to make an amendment.
• Agree on the procedure for voting on the amendment, including whether it should be unanimous or a majority vote.
• Include the steps that need to be taken once an amendment has been agreed upon and what needs to be done to make it legally binding.

Once you have outlined the process for amending the agreement and agreed upon the steps to make it legally binding, you can check this off your list and move on to the next step.

Agreeing on the process for dispute resolution

• Consider how you want to handle disputes that arise between shareholders - many agreements include a clause which states that any disputes must first be discussed in a meeting of shareholders
• Decide whether you want to include an arbitration clause in the agreement, and if so, the terms and conditions associated with it
• Consider whether you want to include a clause which requires disputes to be referred to an independent third party for resolution
• If a third party is to be involved in dispute resolution, decide who will bear the costs associated with it
• Agree on the process for dispute resolution and ensure it is included in the shareholders agreement

Once you have agreed on the process for dispute resolution and included it in the shareholders agreement, you can move on to determining the process for handling disputes between shareholders.

Determining the process for handling disputes between shareholders

• Consider if you need to use a form of alternative dispute resolution (ADR) such as arbitration or mediation.
• Agree how the costs of the dispute resolution process should be split between the shareholders.
• Establish a timeline for the dispute resolution process, including a timeline for both parties to respond to the process.
• Decide whether the decision of the dispute resolution process should be binding or non-binding.
• Outline the details of the dispute resolution process in the shareholders agreement.

Once all of the above points have been considered and agreed upon, you can check this off your list and move on to the next step.

Setting out the process for the election and removal of directors

• Agree on the number of directors that will form the board of directors
• Set out the process for electing and removing directors – e.g. appointment by the shareholders, or by the board of directors
• Decide who will act as chairperson of the board of directors
• Agree on the term of office for each director, and the conditions for re-election
• Set out the authority of each director, and how decisions are to be made
• Agree on any directors’ remuneration, if applicable
• Set out any restrictions or terms on the directors’ service
• Agree on the process for determining the directors’ liabilities

Once you have completed the steps above, you can move on to the next step in the guide: ## Deciding how dividends will be paid to shareholders.

Deciding how dividends will be paid to shareholders

• Decide on the dividend policy and make sure it is included in the shareholders agreement
• Set out the conditions that must be met in order for dividends to be paid out to shareholders
• Define who is entitled to receive a dividend, the frequency and the amount of the dividend
• Decide whether dividends are cumulative or non-cumulative
• Specify the means by which dividends will be paid out
• Outline the procedure for declaring and paying dividends

Once you have decided on how dividends will be paid to shareholders and added this information to the shareholders agreement, you can check this off your list and move on to the next step.

Agreeing on the process for winding up the agreement

• Identify what will trigger the winding up of the agreement and make sure this is clear for all shareholders.
• Discuss how the assets of the company will be distributed in the event of a winding up.
• Find out your legal requirements when it comes to winding up the agreement, such as any notice periods that need to be given.
• Agree on any voting requirements if shareholders wish to wind up the agreement.
• Document all decisions in the shareholders agreement.

You’ll know you can check this off your list and move on to the next step once you’ve updated the shareholders agreement to include the agreed process for winding up the agreement.

Establishing the right to bring in new shareholders

• Draft a clause specifying who has the right to bring in new shareholders
• Make sure the clause specifies any approval or consent that is required from existing shareholders
• Draft a clause that outlines the process for issuing new shares
• Outline the rights of the new shareholder and how they will be treated
• Ensure any new shareholders are bound by the same terms of the shareholders agreement as existing shareholders
• When all parties have agreed to the terms and the relevant documents have been signed, check this off your list and move on to the next step.

Outlining the process for issuing new shares

• Decide on a process for issuing new shares, such as obtaining the agreement of all existing shareholders, or a majority vote
• Set out the rights of existing shareholders to acquire any new shares issued
• Outline the procedure for transferring the new shares to the new shareholder
• Include the process for deciding the price of new shares
• Document the timeframe for when the new shares must be issued
• Include any terms for the new shareholders, such as any restrictions on their voting rights
• Include any restrictions on the transfer of the new shares, such as requiring the consent of existing shareholders

When you can check this off your list: When you have outlined all the necessary provisions for the process of issuing new shares and all the parties have agreed to the terms.

Documenting the rights of shareholders regarding company decisions

• Draft a shareholders agreement that outlines the voting rights of each shareholder and the shareholder’s right to be consulted for major decisions
• Include provisions for how decisions are to be made and how many votes are required for the decisions to pass
• Outline the voting rights of each type of shareholder, i.e. from the majority to the minority
• Specify what decisions require a majority, a two-thirds majority, or unanimous decision
• Include provisions for how long a decision needs to be discussed before a vote is taken
• Specify whether voting rights are determined by the number of shares held or by some other criteria
• Make sure that the agreement complies with the UK’s Companies Act 2006.

When you have completed this step, you can move onto the next step of defining the information that shareholders are entitled to receive.

Defining the information that shareholders are entitled to receive

• Make a list of the information to which shareholders are entitled, such as accounts, balance sheets and minutes of meetings
• Decide on the frequency of information to be shared with shareholders
• Outline the procedure for the delivery of information to shareholders
• Specify the language in which the information must be provided
• Include a clause on confidentiality of the information
• Once all conditions are met and the list of information is agreed upon, this step can be checked off your list and you can move on to the next step – determining the liability of shareholders for company debts.

Determining the liability of shareholders for company debts

• Decide if shareholders will have limited or unlimited liability for company debts
• Research the legal implications of limited or unlimited liability in the UK
• Consider the potential risks of each option
• Draft the relevant clauses in the shareholders agreement
• Seek legal advice if needed
• Have the agreement signed and dated by all shareholders
• Check off this step when all shareholders have signed and dated the agreement and all parties are aware of the liability of shareholders for company debts.

Creating a plan for the distribution of profits and losses

• Liaise with shareholders to discuss the most appropriate way to structure the distribution of profits and losses
• Consider the various options available, such as distributing profits in accordance with the shareholdings of each shareholder or distributing profits equally among shareholders
• Draft a clause in the shareholders agreement outlining the agreed upon method for distributing profits and losses
• Make sure the clause is clear and unambiguous
• Once all shareholders agree on the clause, the clause should be included in the shareholders agreement
• This step should be checked off the list once the shareholders agreement is finalised and all shareholders sign off on it.

Specifying the responsibilities of directors and other officers

• Outline the general duties and responsibilities of directors and other officers
• Define the roles and designations of the board and any other officers in the company
• Note any additional fiduciary duties that directors and officers must adhere to
• Specify the terms and conditions of any bonuses, compensation and other benefits that may be granted to directors and officers
• Establish the process for the review and approval of any contracts signed by board members or other officers

Once you have specified the responsibilities of directors and other officers, you can check this off your list and move on to the next step: Agreeing on the process for the sale or transfer of shares.

Agreeing on the process for the sale or transfer of shares

• Ensure that all shareholders agree on a process for the sale or transfer of shares
• This process should clearly outline the circumstances under which a shareholder can sell or transfer their shares and how the other shareholders or the company can purchase them
• Consider including a ‘right of first refusal’ clause, which requires any shareholder offering their shares to first offer them to the existing shareholders before offering them to external parties
• Put in place a set timeframe for the purchase of shares and the payment of the purchase price
• Consider the use of a third-party broker or appraiser to help determine the fair market value of the shares
• Outline the consequences if the selling shareholder does not receive the purchase price
• When you have agreed on the process for the sale or transfer of shares and all shareholders have signed the agreement, you can check this step off your list and move on to the next step.

Determining the process for the issuance of additional shares

• Decide how and when to issue additional shares
• Establish who will have the authority to issue additional shares
• Decide who will be eligible to receive additional shares
• Decide on the number of shares to be issued and their value
• Set out any restrictions regarding the issuance of additional shares
• Include clauses regarding the rights of existing shareholders
• Set out procedures for issuing additional shares
• Include a clause to protect existing shareholders

When you have agreed on the process for the issuance of additional shares, you can check it off your list and move on to the next step of outlining the process for appointing new directors.

Outlining the process for appointing new directors

• Decide whether the appointment of new directors should be approved by a majority or unanimous shareholder decision
• Decide on the process for appointing a new director, including any nomination or approval rights for existing directors
• Set out how the vacant office of a director should be filled in the event of a vacancy
• Specify how a director can be removed from office
• Include a provision for the appointment of an alternate director
• Outline the process for replacing a director who has resigned or been removed
• Include a provision for the appointment of an alternate director
• Decide how long the appointment of a new director should last
• Determine how a director will be compensated
• Include a provision for indemnifying and insuring the directors

You’ll know you can check this off your list and move on to the next step when all the above points have been addressed in your shareholders agreement.

FAQ:

Q: Is a Shareholders Agreement legally binding in the UK?

Asked by Hannah on June 12th, 2022.
A: Yes, a Shareholders Agreement is a legally binding contract in the UK. It is a contract between two or more shareholders of a company, outlining the rights and obligations of each shareholder, allowing them to agree on how their company will be managed and how their shareholdings will be divided. The agreement should be tailored to the specific circumstances of the company to ensure it is appropriate for the business and its shareholders.

Q: What are the differences between a Shareholders Agreement and Articles of Association?

Asked by David on April 6th, 2022.
A: A Shareholders Agreement is a contract between shareholders that sets out their rights and obligations within the company, while Articles of Association are the rules governing how the company is run, such as how directors are appointed and decisions are made. While they serve different purposes, they both form part of a company’s legal structure and should be read together to ensure they are compatible.

Q: What are the advantages of having a Shareholders Agreement?

Asked by Olivia on December 30th, 2022.
A: A Shareholders Agreement can provide numerous advantages for everyone involved in running a business. It can help protect shareholders from potential conflicts by outlining how decisions will be made and how profits will be divided. It can also provide clarity and guidance on matters such as share transfers, voting rights and dividends, as well as protecting minority shareholders from being outvoted by majority shareholders. Furthermore, it can help prevent disputes by setting out procedures for resolving any issues that may arise.

Q: What information should be included in a Shareholders Agreement?

Asked by Jacob on May 12th, 2022.
A: The information included in a Shareholders Agreement will depend on the needs of the business, but it should typically include details such as how profits will be divided amongst shareholders; how new shares can be issued; what rights shareholders have to transfer shares; what voting rights each shareholder has; and what procedures should be followed if any disputes arise. It may also include details such as dividend policies or restrictions on directors’ powers.

Q: Is it necessary to have legal advice when drafting a Shareholders Agreement?

Asked by Emma on August 3rd, 2022.
A: Although it is possible to draft your own Shareholders Agreement without legal advice, it is highly recommended that you seek professional advice from an experienced solicitor or lawyer in order to ensure that the agreement is thorough and covers all relevant issues. This will help ensure that your agreement reflects your business’s needs and is legally binding.

Q: What happens if there is no Shareholders Agreement?

Asked by Noah on October 28th, 2022.
A: If there is no Shareholders Agreement in place, then the rights and obligations of each shareholder will be determined by the Companies Act 2006 (as amended). This could mean that certain matters are decided differently than you would wish them to be, which could lead to disputes or disagreements amongst shareholders. Therefore, having a comprehensive Shareholders Agreement in place can help to avoid these issues arising in the first place.

Q: How often should a Shareholders Agreement be updated?

Asked by Madison on July 15th, 2022.
A: It is recommended that you regularly review your Shareholders Agreement to ensure it remains up-to-date with changes in legislation or business practice that could affect your company’s operations or structure. In particular, if there have been any changes to your company’s shareholders (e.g., new investors), then you should review your agreement to make sure it still reflects everyone’s interests accurately.

Q: Do I need to register my Shareholders Agreement with Companies House?

Asked by Logan on February 11th, 2022.
A: No, you do not need to register your agreement with Companies House as it is an internal document between shareholders only. However, it can be beneficial to register certain aspects of it (such as share transfers) as this makes them publicly available which can provide greater transparency and protection for all involved parties.

Q: Are there any differences between UK and US laws when it comes to structuring shareholder agreements?

Asked by Emma on November 1st, 2022.
A: Yes, there are significant differences between UK and US laws when it comes to structuring shareholder agreements due to different regulations applicable in each jurisdiction (such as tax laws). When drafting an agreement that applies across multiple jurisdictions (e.g., for companies with operations in both countries), you should seek specific legal advice tailored for each jurisdiction in order to ensure compliance with applicable laws and regulations everywhere your company operates.

Q: How can I protect minority shareholders from being outvoted?

Asked by Michael on March 23rd, 2022.
A: One way of protecting minority shareholders from being outvoted is by including provisions regarding voting rights within your Shareholders Agreement (such as restricting voting rights to those with a certain number of shares). This can help ensure that all shareholders have an equal say in important decisions affecting the company regardless of their shareholding size or voting power within the company structure. In addition, you may want to consider including provisions regarding deadlocks or disputes resolution procedures which could help resolve any issues before they become serious problems for the business.

Q: What happens if I breach my obligations under my Shareholder Agreement?

Asked by Ashley on January 5th, 2022.
A: If you breach your obligations under your Shareholder Agreement then you may face legal action from other parties involved in the agreement (e.g., other shareholders). This could include claims for damages or injunctive relief (e.g., an order restraining you from taking certain actions). Therefore it is important that you understand your obligations under the agreement before signing so that you do not inadvertently breach them and potentially face costly legal action later down the line.

Q: Are there any restrictions regarding share transfers under UK law?

Asked by Matthew on September 19th 2022.
A: Yes – under UK law there are certain restrictions regarding share transfers which must be taken into consideration when drafting your Shareholder Agreement (or when transferring shares). These restrictions include requirements such as obtaining prior approval from other shareholders before transferring shares (or assigning them), making sure that any transfer of shares meets certain tax criteria (if applicable), ensuring that any transfer does not breach any existing contractual obligations relating to shares held by another party etc…

Q: Are there any restrictions regarding dividends under UK law?

Asked by Joshua on April 20th 2022.
A: Yes – under UK law there are certain restrictions regarding dividends which must be taken into consideration when drafting your Shareholder Agreement or making dividend payments (if applicable). These restrictions include requirements such as obtaining prior approval from other shareholders before making dividend payments; ensuring that dividend payments meet certain tax criteria; ensuring that any payment does not breach any existing contractual obligations relating to shares held by another party etc…

Q: Can I change my Shareholder Agreement after I have signed it?

Asked by Isabella on October 5th 2022.
A: Yes – generally speaking you can make changes to your Shareholder Agreement after signing if all parties involved agree with those changes (although this depends on what has been agreed upon within the original agreement). In order for these changes to be legally binding they must also comply with relevant laws and regulations applicable in each jurisdiction where they are relevant (such as tax laws). Therefore if you wish to make changes then we recommend seeking professional legal advice beforehand so that these changes do not inadvertently breach any existing laws or regulations

Example dispute

Raising a Lawsuit Referencing a Shareholders Agreement

• The plaintiff must have an existing shareholders agreement, which outlines the rights and responsibilities of the shareholders.
• The lawsuit must be based on a breach of the shareholders agreement that has caused the plaintiff harm.
• The lawsuit must provide evidence of the harm incurred as a result of the breach, as well as evidence of the breach itself.
• The lawsuit must also describe what the plaintiff is seeking in terms of relief or damages.
• The lawsuit must include any applicable regulations or laws that have been violated, as well as any applicable civil law that may be applicable.
• The lawsuit must also explain how settlement might be reached, and if damages are sought, how they might be calculated.

Templates available (free to use)

50 50 Joint Venture Shareholders Agreement
Declaration Of Trust Nominee Shareholders Agreement
Individuals Shareholders Agreement Private Company Limited By Shares
Shareholders Agreement Unequal Parties
University Spin Out Subscription And Shareholders Agreement

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