WHAT IS A SHAREHOLDER'S AGREEMENT AND WHY IS IT NECESSARY FOR YOUR SMALL BUSINESS?
May 11th, 2017.



It’s very easy for shareholders/owners to start a business and postpone their shareholders’ agreement, but it is important to get these agreements in place to begin with.


When incorporating a company with two or more shareholders, a shareholders’ agreement is a key consideration. Although it is not a legal requirement, its purpose is to further regulate the way business between shareholders are conducted. This is very different to partnerships. In the absence of a partnership agreement, the partners can rely upon the provisions contained in the Partnership Act 1890. The same however does not apply to shareholders.

A shareholders’ agreement is a private agreement and there is no requirement to file it at Companies House. The shareholders can, therefore, enjoy confidentiality with regards to the terms contained therein. There are many benefits and they are as follows:

Shareholders can retain the right to make certain decisions
Directors are responsible for the day to day management of a company’s affairs. Shareholders may take the view that certain decisions should not be left to the discretion of directors. Instead, they may wish to make those decisions such as approving a financial transaction that exceeds £5,000. This is particularly useful where the company directors are not shareholders.


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