When it comes to making decisions in limited companies, Company Law states that shareholders who own more than 50% of the shares can pass a motion at a company meeting regardless of the views of other shareholders, and if a shareholder(s) owns 75% or more of the shares, they control the company outright and can veto all other shareholders’ decisions.
This may not be suitable in all business situations, particularly when there are two or more founders with equal share capital or a group of owners with varying amounts of capital, some of whom are directors and some who are not, but who are all working for the company’s success.
A shareholders’ agreement is a contract signed by all or some of the shareholders of a company. It governs the relationship between shareholders, the management of the company, share ownership, and shareholder protection. It also governs how the company is run.
A shareholders’ agreement can help define how a business makes decisions that benefit all owners and is recommended in the following situations:
- A small group of owners wants to make decisions together that are fair and good for everyone;
- Some owners may want a say in decisions that are particularly pertinent to them; or
- Some shareholders may not be directors and thus have no influence on day-to-day operations.
It typically seeks to address the three “D’s” of death, disability, and disagreement. It may also cover a variety of other significant areas, such as retirement and share buybacks.
A shareholders’ agreement is a crucial document for any limited company, and a well-drafted agreement should reassure all parties.
If you need help planning an agreement, especially if there are multiple shareholders, a new company is being started, a shareholder wants to sell or give their shares to their children, someone is about to retire, or the company borrowed money from a shareholder, please contact us. We are able to provide assistance with share and company valuations, as well as with putting the wishes of shareholders into an agreement with a local attorney.
We are here to help you through each stage of the business lifecycle, assisting you in navigating the challenges and in making the best decisions for you, your family, and your business both now and in the future.
For additional guidance and helpful advice for SMEs at every stage of their development, including startup, growth, maturity, and exit, click here.