Shareholder agreements

In the simplest terms, articles are a publicly available document filed at Companies House setting out the provisions relating to the way the company is going to be operated and owned. Shareholder agreements are private contractual documents which often are introduced at the time the company is set up or when investment comes in. A shareholder agreement will often contain clauses such as restrictive covenants binding on key directors; agreement between the shareholders as to how the company is going to be funded, and when dividends are going to be extracted.

Increasingly we are seeing clients dispensing with shareholder agreements at the time of incorporation and setting out key provisions, such as share rights and leave provisions, in articles of association only. Shareholder agreements are then introduced at the time that material third party investment is introduced into the company.

They are usually to protect both. An investor will require key minority shareholder protections before getting out the cheque book. These could include, for example, the right to serve on the board; sign off on key operational matters and tag along rights (which allow them to sell at the same time as the majority exit). Equally majority shareholders will often try to lock in key rights and control of the board.

If there is a large investment being made in the company, warranties from the company and founders may often be contained in a subscription agreement, with a separate shareholder agreement setting out day-to-day operational issues.

Yes. Often Fox Williams can act for the company and document the agreement reached between the shareholders, thus alleviating the need to have a multitude of lawyers acting on the transaction.