Shareholders’ agreements are contracts between some or all of the shareholders of a company and, sometimes, the company itself. Their main purpose is to regulate the relationship between the shareholders who are parties to the agreement and the way in which they deal with the company of which they are shareholders.
They may take many different forms depending on factors such as the nature and purpose of the company, the reason for the shareholders’ agreement, the comparative size of the shareholdings of the relevant parties and the roles of the parties in the company.
Neither companies nor shareholders are required to have a shareholders’ agreement. However, they are a useful means of dealing with matters such as the management of the company, board and shareholders meetings, disputes between members, finance, issuing shares, transferring shares, pre-emption rights, rights to information and dividends, confidentiality and restrictive covenants.
A shareholders’ agreement is a private contract and a separate document from the constitutional documents of the company – the memorandum and articles of association – which are public documents.
The articles of association contain rules relating to the management of the company and the separate relationship that exists between the shareholders and the company. It is sensible to make sure that a shareholders’ agreement does not conflict with the articles of association.
The memorandum of association of a company has a limited role in modern companies. However, in older companies it is also sensible to make sure that a shareholders’ agreement does not conflict with it.
There are certain circumstances in which a shareholders’ agreement may cease to be a private document. These include where a shareholders’ agreement has to be filed at Companies House or where it has to be disclosed in the course of legal proceedings.
It is not usually necessary to file a shareholders’ agreement at Companies House. It is a private contract separate from the constitutional documents of the company, which must be registered at Companies House.
The effect of sections 17, 29 and 30 of the Companies Act 2006 is to require a company and its officers to ensure that certain types of resolution or agreement (or, in the case of a resolution or agreement that is not in writing, a written memorandum setting out its terms) are filed at Companies House within 15 days after they are passed or made.
In so far as these provisions relate to shareholders’ agreements, an issue may arise, for example, where (a) a shareholders’ agreement is referred to in the articles of association of the company and the articles are not capable of interpretation without reference to the shareholders’ agreement, or (b) the shareholders’ agreement deals with certain matters that are the same as or very similar to those contained in the articles of association. If the shareholders’ agreement contains wording to the effect that any part of it takes precedence over any provision of the articles of association of the company (for example, in the event of conflict) then that might indicate that the shareholders’ agreement should be registered under the Companies Act 2006. This type of problem can normally be avoided by putting in place properly drafted documents, which do not conflict with each other and adding a provision in the shareholders’ agreement to the effect that the parties will exercise their powers to amend any conflicting provisions in the articles.
A shareholders’ agreement is a contract between the parties who have entered into it. In order to be valid and legally binding, it will need to comply with the usual contractual requirements relating to offer, acceptance, consideration and an intention to create legal relations.
A valid and legally binding shareholders’ agreement will usually grant the signatories numerous rights (for example, with regards to information, voting and buying and selling shares) and impose a variety of obligations (for example, with regards to confidentiality and restrictive covenants).
Importantly, the contractual rights contained in a shareholders’ agreement can be enforced using normal contractual principles. Conversely, it can sometimes be difficult for shareholders to enforce certain apparently similar rights contained in the articles of association of a company as many of these rights need to be enforced by the company itself (which may cause particular difficulties for minority shareholders).
As a shareholders’ agreement is a contract, the remedies available for breach of a shareholders’ agreement are based on contract law. The most common remedy for breach of a shareholders’ agreement is damages but, depending on the circumstances, other remedies (such as an injunction) may be available.
It is usually the case that all of the shareholders in a company are parties to a shareholders’ agreement. However, that is not always the case.
The shareholders who are parties to a shareholders’ agreement may be individuals or other types of legal person, for example, companies. Where companies are involved, it may be necessary to take additional steps in order to ensure that the company does not circumvent certain rights contained in the shareholders’ agreement, such as pre-emption rights.
Some shareholders’ agreements may be between specific classes of shareholders or between groups of related shareholders (for example, families).
The company to which a specific shareholders’ agreement relates may sometimes be a party to the shareholders’ agreement. This is often for defined limited reasons in order to ensure that it remains a private contract and it does not become necessary to file the shareholders’ agreement at Companies House.
If you would like more information about shareholders' agreements or would like to discuss an existing or potential shareholders' agreement, please email us at firstname.lastname@example.org, complete an Enquiry Form or call us on +44 (0)20 3126 4520 or +45 38 88 16 00.