RM2 > Resources > News > We’re all friends - we don’t need a Shareholders’ Agreement, right?

We’re all friends - we don’t need a Shareholders’ Agreement, right?

Posted on November 18, 2014

When a new business starts everyone is excited. All working together to build something new, exciting and hopefully hugely successful. There’s a lot to think about – business plans, intellectual property, directors, investors. Paying a lawyer to figure out what you already know is an expensive luxury, right?

Wrong.

So, what’s the position if you don’t have a Shareholders’ Agreement? You’ll find you have to rely on the provisions of the Companies Act 2006 and the company’s Articles of Association. If you’re not spending on a Shareholders’ Agreement then chances are you don’t have bespoke Articles either, so you’re really relying just on the Act and its standard Model Articles.

If you want to sell your shares you have no way of compelling the other shareholders to do the same. If you want the business to take a new direction you may find you have no real influence. You might be on the Board now, but the other shareholders could remove you if they hold over 50% of the shares. 

But if you’re not on the Board you can still have access to all the information they do, right?

Wrong.

Shareholders of private companies have statutory rights to certain information, but these don’t include board minutes or general financial records. Model Article 50 even goes so far as to state that there is no right to inspect accounts and other records merely by virtue of being a shareholder.

Having a Shareholders Agreement can protect you by giving the directors the power to run the company day-to-day but with a set of matters which only a unanimous decision of the shareholders can action.  When investors are bringing capital rather than management expertise the reserved matters are even more important for the protection of their investment. 

These might include matters which affect the value of your shares – such as having the right of first refusal when new shares are issued, if there is to be an issue of loan capital or if the company is to dispose of a material part of its business. You want a veto over things like this, don’t you?

A Shareholders Agreement can also set out what will happen if there is a dispute or deadlock at director or shareholder level. Such a process may well be less expensive and time consuming than bringing a statutory claim to Court - for unfair prejudice, or to seek to enforce claims the company might have against directors or third parties.

Whether you are investing your time or your money, it’s worth protecting, isn’t it?

Susan Perry, Partner
Kerman & Co Solicitors
susan.perry@kermanco.com

 
Content

Book your free consultation!

Thank you for visiting RM2’s website. A member of our team will contact you accordingly once the form below has been completed.

 
Captcha Code

Click the image to see another captcha.


 

Refresh this form