Avoiding Disputes: Shareholders Agreements and Dispute Prevention
Reasons to choose Wilson Browne
Private limited companies in the UK are governed by their Articles of Association, which set out how the company operates and the basic rights and restrictions of its shareholders
However, where there is more than one shareholder, we always recommend having a shareholders’ agreement alongside the Articles.
A shareholders’ agreement deals with the practical day-to-day relationship between the shareholders and the company – things that the Articles often don’t cover. It also has the added benefit of being a private document, unlike the Articles, which are publicly available at Companies House. Most importantly, it helps to prevent disagreements by setting clear expectations from the outset.
Why are shareholders’ agreements useful for preventing disputes?
A shareholders’ agreement is a way for shareholders to agree in advance how important decisions will be made, what happens if someone wants to leave, and how differences of opinion will be resolved. This can be invaluable in maintaining good working relationships, especially where the company is owned by friends, family members, or business partners who may not expect disputes to arise.
Here are some key areas where a shareholders’ agreement can make a difference:
Avoiding Deadlock
When shareholders disagree, particularly where ownership or voting rights are split evenly, the company can quickly become stuck. A shareholders’ agreement can include clear procedures to break a deadlock, for example, referring the matter to an independent advisor, giving a director a casting vote, or setting out buy-out options. Having an agreed process in place avoids friction and disruption to the business.
Decision-making and Approvals
The agreement can spell out which decisions need everyone’s consent and which can be made by a majority. This might include taking on significant expenses, appointing new directors, or changing the company’s structure. Setting these rules early on helps to manage expectations and keeps decision-making transparent.
Transferring Shares
Without set provisions, one shareholder could sell their shares to anyone – including someone the others don’t know or trust. The agreement can set out how and to whom shares can be sold or transferred. Usually, existing shareholders are given the first opportunity to buy, keeping control within the group.
Planning for the Future
A shareholders’ agreement can also set out what happens if someone wants to step away from the business, retire, or if something happens to a shareholder. This helps to keep the business running smoothly, even when ownership changes over time.
In summary
Even where relationships between shareholders start out strong, business pressures or changing personal circumstances can lead to disagreements. A shareholders’ agreement acts as a safety net to provide clarity, fairness and a clear process for resolving issues before they escalate.
Taking the time to put one in place now can save a great deal of stress (and cost) later. That way, you can focus on growing your business.
If you’d like support putting a shareholders’ agreement in place, the Corporate & Commercial team at Wilson Browne Solicitors can help with expert, practical advice tailored to your business needs.
For a confidential and no obligation initial discussion about how we may be able to help, please contact the Corporate and Commercial team at 0800 088 6004.
Posted:
Emily Coles
Solicitor
Emily is a solicitor based in the Northampton office working within the Corporate and Commercial team and advises businesses of all sizes on a broad range of matters, including company acquisitions, shareholders’ agreements, commercial contracts and corporate governance. Emily recognises the importance of each stage…