CHRISTMAS OFFER Subscribe to Dorset Magazine today CLICK HERE

The importance of putting a Shareholders’ Agreement in place when setting up a new company

PUBLISHED: 12:08 13 April 2016 | UPDATED: 12:08 13 April 2016

Getty Images/iStockphoto

Getty Images/iStockphoto


Commercial Solicitor, Jeremy Channon, reveals the importance of putting a Shareholders’ Agreement in place when setting up a new company

Shareholders’ Agreements cost money to put in place. For this very reason most clients who I receive instructions from generally fall into the following categories: ‘The Bitten’ - previously bitten by not having one in place; ‘The Insured’ - in connection with a Life Insurance Policy to provide protection for immediate family; and ‘The Smart’ – who also tend to be highly organised. Most clients tend to fall into the first two categories.

Most companies are purchased by new businesses as “off the shelf companies”. The problem is that these companies tend to have slightly basic terms in their Articles of Association which don’t cover many of the issues that business owners often find themselves dealing with later in the company’s lifespan.

There is also another issue with Articles of Association, especially if you are a minority shareholder, in that they can be amended by those shareholders holding 75% or more of the shares. This can result in changes being made to the company, including company finances, which minority shareholders are virtually powerless to stop. A Shareholders’ Agreement can be drafted so that it requires unanimous consent of the shareholders to change it and so it deals with the same issues as are governed by the Articles of Association but in priority to them.

The common issues which Shareholder Agreements’ deal with are as follows:

• Provisions which deal with deadlock in the event of shareholder dispute - including arbitration provisions or the right to buy each other out, it is especially relevant to companies where there is a 50/50 split in share ownership

• The right to purchase the shares of a deceased fellow shareholder (or to force the other shareholders to buy them) in accordance with an agreed valuation method. Often referred to as a “cross option”, it is relevant to situations where the shareholders want to put an insurance policy in place so that immediate family can receive value for their share of the company should the shareholder become incapacitated or pass away

• Protection of minority shareholders (including the right to appoint a director)

• The right to benefit from a takeover offer (conversely this could include the right to be forced to sell but in accordance with an agreed valuation method or to have the right to beat the offer made and purchase the shares yourself).

Whatever your reasons, putting a Shareholders’ Agreement in place at the start of your new company is a smart investment of time and money which will give you and your fellow shareholders a clear understanding of what is expected from the outset. 

Get in touch

If you are thinking about putting a Shareholders’ Agreement in place or want to discuss any other director or shareholder related issue then you can contact Jeremy Channon, Commercial Solicitor (LLB Law (Hons)) at MJP Law on 01202 842929 or visit MJP Law have offices in Wimborne, Bournemouth, Westbourne, Ferndown and Verwood.


Welcome , please leave your message below.

Optional - JPG files only
Optional - MP3 files only
Optional - 3GP, AVI, MOV, MPG or WMV files

Please log in to leave a comment and share your views with other Dorset visitors.

We enable people to post comments with the aim of encouraging open debate.

Only people who register and sign up to our terms and conditions can post comments. These terms and conditions explain our house rules and legal guidelines.

Comments are not edited by Dorset staff prior to publication but may be automatically filtered.

If you have a complaint about a comment please contact us by clicking on the Report This Comment button next to the comment.

Not a member yet?

Register to create your own unique Dorset account for free.

Signing up is free, quick and easy and offers you the chance to add comments, personalise the site with local information picked just for you, and more.

Sign up now

More from People

Tuesday, October 16, 2018

From festival director to an internationally acclaimed artist, meet some of the remarkable people working behind the scenes to enhance what historic Sherborne has to offer

Read more
Tuesday, September 25, 2018

Hosted by Martin and Philippa Clunes, this year’s event drew people, ponies and dogs from far and wide to raise funds for Dorset County Hospital Charity Cancer Appeal

Read more
Friday, July 27, 2018

Martin Clunes and his family have called West Dorset home for over two decades. Here he shares some of their favourite local places

Read more
Monday, July 9, 2018

Calling all self-professed Clunatics! Test your knowledge on Doc Martin with our quiz.

Read more
Tuesday, March 27, 2018

Fanny Charles meets some of the residents and businesses owners who are proud to call Dorset’s newest town the place where they work, live and play

Read more
Tuesday, March 13, 2018

Donna and Harry Mosley have brought the taste of their world travels to The Paddle in Highcliffe, where brunch and lunch is a deliciously leisurely affair

Read more
Tuesday, March 6, 2018

Here we turn the spotlight on some of our county’s most successful and discover what makes them tick

Read more
Tuesday, March 6, 2018

Human rights lawyer, Clive Stafford Smith has brought the plight of detainees at Guantanomo Bay into the art rooms of local schools

Read more
Friday, March 2, 2018

Rural communities throughout the UK could be eligible to receive funding via the Calor Rural Community Fund from energy provider Calor

Read more
Tuesday, February 27, 2018

His extraordinary physique made Chang Woo Gow famous, but this well educated family man sought escape from the limelight in Boscombe

Read more
Thursday, February 8, 2018

Retired drama teacher turned film director and producer, Rosita Clarke tells us about the ghostly Dorset love story that has just won her an award at an international film festival

Read more
Tuesday, February 6, 2018

We’ve been lucky enough to speak to some of Dorset’s best known over the years. Here’s what they love most about this beautiful county

Read more
Monday, January 29, 2018

A world-renowned explorer, a palaeontologist and futurist, and a butterfly conservator reveal the importance of the past for the future of mankind

Read more
Monday, January 15, 2018

AFC Bournemouth’s Jermain Defoe tells Andy Greeves how having a virtually vegan diet has helped to keep him at the top of his game and why beetroot helps him run faster

Read more

Local People

Tuesday, October 16, 2018

From festival director to an internationally acclaimed artist, meet some of the remarkable people working behind the scenes to enhance what historic Sherborne has to offer

Read full story »