Shareholders Agreement

A shareholders agreement is a contract between the members of a company regulating the relationship between those persons signed up to it.

Unlike a company's articles of association, which are open to public inspection at Companies House, a shareholders agreement is a private document.

A shareholders agreement will commonly regulate the relationship between shareholders, as well as setting operational parameters for the company and providing dispute resolution and exit mechanisms.

Commonly covered issues are:

• in what circumstances members are permitted to transfer shares;
• if there are any commercial decisions the board is not allowed to make without first seeking shareholder approval;
• if agreement cannot be reached on decisions how matters are to be dealt with;
• mechanisms for the transfer of shares;
• rules relating to the expulsion of members and the compulsory transfer of shares; and
• the +valuation of shares in particular circumstances
  

The sort of issues dealt with in a shareholders agreement are not usually covered in the company's constitution. Uncertainty is fertile ground for future disputes between the shareholders. The shareholders agreement seeks to set down ground rules for avoiding such disputes or for providing a mechanism for dealing with them if they do arise.