Company Commercial Law

Shareholder Agreements & Articles of Association

From simple agreements between two equal shareholders, to more complex arrangements
A clear, robust Shareholders Agreement and/or Articles of Association can pre-empt disputes and assist with smooth business succession.

Why seek legal advice

It is always a mistake to wait until a problem arises between shareholders before putting sensible legal provisions in place. By that time, it will be difficult and costly to resolve matters.

From simple agreements between two equal shareholders, to more complex arrangements involving multiple shareholders and corporate groups, we can provide clear, well thought-out documentation to meet the particular circumstances of your business. We will advise you on the questions you should be considering, and help you reach appropriate solutions.

  • Clarify shareholder contributions/expectations
  • Minimise scope for disputes
  • Restrict/regulate share transfers
  • Specify any consents/approvals needed
  • Facilitate recovery of shares
  • Provide dispute resolution mechanism
Shareholder agreements
Commercial lawyer Dorset

Why choose HK Law?

Robust documents governing the relationships between shareholders are essential for both business protection and business succession.

Our dedicated team specialises in producing bespoke documentation tailored to the circumstances of each client. We take time to get to know your business and to understand the personalities and the perceived risks, threats and opportunities.

  • We get to know your business
  • We identify the issues that are important to you
  • We provide concise, plain-English documents
  • We look to the future of your business
  • We are commercially-focussed and pragmatic
Caroline Carretta HK Law

Your questions answered

Caroline Carretta – Partner; Head of Corporate & Commercial Law Team
  • Why do we need a Shareholders Agreement?
    Focusing on potential issues in advance, and agreeing the “ground rules” as between shareholders, often avoids potential disputes. For example, the question of how your company’s shares would be valued if a shareholder were to leave is much better discussed and agreed in advance, rather than seeking to agree something at the point of exit.
  • How do we get shares back from a director who has left?
    Without specific contractual provisions entitling the company and/or the remaining shareholders to purchase the shares, there is no such right. This means that an ex-director or ex-employee can retain their shareholding (even if working for a competitor) or demand an artificially high price for their shares at the point of exit. Hence the importance of having the correct provisions in place in advance.
  • What are pre-emption rights and why do we need them?
    Appropriate pre-emption rights and share transfer provisions can restrict shares being transferred to “outsiders” unless the other shareholders agree, ensure that existing shareholders control the company’s ownership structure, and facilitate smooth business succession. Pre-emption rights generally require shares to be offered to the company and/or the remaining shareholders for purchase, before they can be sold to third parties.
  • Do we need both a Shareholders Agreement and Articles of Association?
    Articles of Association are a contract between the shareholders and the company itself, and are a public document, registered at Companies House. It is therefore often preferred to put certain matters in a Shareholders Agreement, which is a private, unregistered contract. This can include restrictive covenants, “reserved matters” requiring specific levels of consent or agreement between shareholders, and dividend policies.
  • I am investing cash for a 20% shareholding. Do we need a Shareholders Agreement?
    A 20% shareholding gives little influence, and certainly no control, over how the company conducts its business and could entitle you to regular information about the business, require your consent for particular big decisions or transactions, or entitle you to a seat on the board if you wish.
  • Our company is owned 50/50 between the two directors. Why do we need a Shareholders Agreement?
    Two equal shareholders may appear to be the simplest shareholding structure. However if the shareholders disagree on a particular decision the company can become “deadlocked”, and sometimes unable to carry on its business. A Shareholders Agreement or Articles can avoid this by setting out how any deadlock would be resolved. Without such provisions, winding up the company may be the only solution.
  • Our minority shareholders own 15% of the company. What should we think about when preparing for sale?
    Consider including provisions in the Articles of Association/Shareholders Agreement whereby, if an offer is made for the company which most shareholders wish to accept, the minority must sell their shares on the same terms accepted by the majority. Without these provisions, the minority shareholders could refuse to sell (or demand a higher price for their shares), and scupper the sale.

By Darren Francis, Associate Solicitor

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Our Shareholder Agreements & Articles of Association team

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