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Shareholder agreements
Shareholder agreement solicitors in Scotland
When a company has more than one owner, a shareholders’ agreement sets out how it will be run and what happens when things change. It is one of the best ways to avoid a costly dispute later.
Set the rules while everyone agrees
The right terms now can prevent a costly dispute later. These are the protections owners ask us about most.
Why you need a shareholders’ agreement
Without an agreement, the relationship between shareholders is governed only by the company’s articles and company law. That leaves gaps, and disagreements can quickly arise when a shareholder wants to leave, stops contributing or disagrees with the direction of the business.
A well drafted agreement sets the rules in advance, while everyone is still on good terms. It costs money at the outset, but it can save far more by preventing a dispute or giving a clear route out of one. We can also help if a shareholder dispute has already started.
What a shareholders’ agreement covers
The content is largely up to you, and our solicitors will make sure the terms suit your company. Agreements usually deal with:
- The nature of the company’s business
- How and when shares can be transferred
- How commercial decisions are made
- The make-up of the board of directors
- What each shareholder contributes
- The company’s dividend policy
- How disputes and deadlock are resolved
- Restrictions on competing with the business
For example, you may want a right of first refusal so that a shareholder who wants to sell must offer their shares to the others first. You may also want a list of reserved matters, which are decisions the directors cannot make unless a set number of shareholders have agreed in advance.
Key protections we often include
- Pre-emption rightsExisting shareholders get the first chance to buy shares that are being sold or newly issued.
- Drag-along and tag-alongA majority can require minority shareholders to join a sale of the whole company, and minority shareholders can insist on joining a sale on the same terms.
- Good leaver and bad leaver termsRules setting the price paid for a departing shareholder’s shares, depending on why they leave.
- Deadlock provisionsA clear route to resolve a stalemate between equal shareholders, such as mediation or a buy-sell mechanism.
- Death and incapacityWhat happens to a shareholder’s shares if they die or can no longer take part in the business.
How it works with your articles
Your articles of association are public and can usually be changed by a special resolution, which needs 75% of the votes. A shareholders’ agreement is private and can require every shareholder to agree to certain changes, which gives minority shareholders stronger protection.
The two documents should be drafted together so they do not contradict each other. When a new shareholder joins, they should sign a deed of adherence so that they are bound by the existing agreement on the same terms as everyone else.
At a glance
- What it is
- A private contract between the shareholders, and often the company itself
- Works with
- Your articles of association, which are public at Companies House
- Covers
- Decisions, share transfers, leavers, dividends and deadlock
- Best time
- When the company is formed or a new shareholder joins
Starting a company with others, or bringing in a new shareholder? We will explain the terms that matter and draft them for you.
Book a free* consultation0141 471 9166*Free initial consultation of up to 30 minutes.How we prepare your agreement
- Understand the businessWe find out who owns what, who does what and what each shareholder is worried about.
- Agree the key termsWe set out the main choices, such as leaver terms and reserved matters, so you can decide them together.
- Draft and reviewWe prepare the agreement and any changes needed to your articles, then go through them with you.
- Sign and keep up to dateWe arrange signing, including electronic signature, and can update the agreement as the company changes.
Questions we are often asked
Is a shareholders’ agreement legally binding?
Yes. It is a contract between the shareholders who sign it, and often the company too, and it can be enforced in court.
Can we put a shareholders’ agreement in place after the company has started trading?
Yes. Many agreements are put in place years after incorporation, often when a new shareholder joins or the owners want more certainty.
What happens if there is no agreement and we fall out?
You are left with the articles and company law, which may not give a clear answer. Disputes can then become expensive. See our article on how shareholder disputes are resolved in Scotland.
Does a new shareholder automatically sign up to the agreement?
No. A new shareholder is bound by the articles, but they need to sign a deed of adherence to be bound by the shareholders’ agreement.
Can the agreement stop a shareholder setting up a competing business?
It can include reasonable restrictions on competing and on approaching staff and customers. These must go no further than is needed to protect the business, or they may not be enforceable.
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