Standard Shareholder Agreements

The Companies Act 2006 with the introduction of model articles has introduced a ‘think small first’ approach to the ownership and management of a private company, they avoid duplicating provisions already held within the Act. These model articles then, do not include any pre-emption rights for the sale or transfer of shares, they also give directors unlimited power to allot ordinary shares without shareholder approval. Whereas this think small approach may work for a small family business it may not fair as well in other circumstances. Model articles may in many circumstances offer little or no protection to some shareholders.

Agreements are commonly entered into between the shareholders of companies, which may regulate the relations between the members and operate alongside the articles of the company. While articles may always be amended by special resolution, a shareholders’ agreement may be expressed to be unalterable except with, say, the agreement of all members and may thus be used to entrench provisions. A shareholders’ agreement may be expressed to take precedence over the company’s articles.

A shareholders’ agreement may be kept confidential to the parties and will not usually need to be filed at Companies House. Such agreements may be used to give rights to members that would be unenforceable if contained in the articles, such as personal rights not forming part of membership status, e.g. to hold office as a director or professional adviser. They may also regulate relationships between members not connected with the administration of the company such as obligations to provide loan finance and options between the members over their shareholdings. Shareholder agreements are commonly used to govern incorporated joint ventures and to protect the interests of minority outside investors in a company. They are of particular relevance to private companies and to closely held public companies.

Although the company may be made a party to the agreement, it will not be enforceable against the company as such if it purports to restrict the company from exercising its statutory rights and complying with its statutory obligations (e.g. the rule that articles may be altered by special resolution). However, the courts will enforce a shareholders’ agreement insofar as it commits the shareholders to use their shareholders’ rights to give effect to the provisions of the agreement, although only the shareholders who are a party to the agreement will be bound.

Standard shareholder agreements include provisions and procedures for;

• Allotment of shares
• Transfer of shares
• Limit on capital
• Rights to appoint directors
• Procedures of directors
• Directors remuneration, and
• Winding up

Standard Agreement £34.99 with the Company Formation,