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Mark,
29 December, 23
The solicitor who was appointed to me was outstanding
Very simple to engage with instant confirmation in writing straight after. Daniel, the solicitor who was appointed to me, was outstanding in his approach, his understanding of the technicalities of the law and, crucially, a genuine care for the client. Would definitely advise using Lawhive, you won't regret it.
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04 October, 23
We were so pleased to find the Lawhive website
After struggling to find a solicitor willing to give us advice, and for a reasonable cost, we were so pleased to find the Lawhive website. At first we wondered how well it would work, but needn't have worried at all - the whole process was simple, straightforward and professional and great value for money. We felt extremely lucky to be matched with our solicitor, Sonay Erten, as she was exactly what we were looking for - knowledgeable, patient and kind - a refreshing change from solicitors we have used in the past. She showed a great deal of empathy for our situation and explained things in language that was easy to understand (rather than the usual "solicitor" talk, which can be intimidating). She's a shining example of what a solicitor should aspire to be and I wouldn't hesitate to recommend her to others or use her again in the future. We came out of our session reassured and confident of what we needed to do going forward, so a big "thank you!"
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23 July, 23
Very efficient! Can highly recommend.
I found the website very easy to use. Quick responses and I was even able to talk to someone who was friendly and competent. She rang me rather than emailed me. A solicitor was quickly found who could help me and once the relevant identification was approved he started work. Within two days the solicitor had checked documents and commented on them. Very efficient! Can highly recommend.
Pauline Piper,
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The service was fast and ultra professional
Sonay was really informative and understood my questions instantly, what I thought was complex Sonay simplified massively. She regularly checked in and the service was fast and ultra professional. Would highly recommend.
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Great service and very reasonably priced, Kem was really helpful and professional. Would use again
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About

**Understanding Shareholder Agreements** A Shareholder Agreement is a legally binding contract among a company's shareholders. It spells out the rights and duties of each shareholder and might cover the company's registered office, agent, and rules about share transfers. Solicitors can help create agreements that align with shareholders' and the company's goals.Next steps

How much does a Shareholder Agreement cost?

The cost for a licensed solicitor to help with a Shareholder Agreement is dependent on many factors including the complexity and specific requirements of the case. On average it is expected to range from £349-£450 but in some cases it could cost as much as £600.

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Shareholder Agreements Solicitors

Many people set up a business with friends or family without thinking about protecting their interests in the company until problems arise. In this situation, the company’s articles of association might not provide enough protection for shareholders, which can lead to issues. 

Shareholder agreements include rules that help prevent conflicts between shareholders and outline how to handle disagreements. 

At Lawhive, our expert network of corporate law solicitors is on hand to offer quick, affordable legal guidance and support when starting a business, including help with shareholder’s agreements.

For personalised help, contact our legal assessment team today. 

What is a Shareholder’s Agreement?

A shareholder’s agreement is a deal between some or all of a company’s shareholders. It sets out rules for how they work together, manage the company, own shares, and protect each other. These agreements also shape how the company operates. 

What is the purpose of a Shareholder Agreement? 

A shareholder agreement aims to make sure that shareholders are treated fairly and their rights are protected. They cover various scenarios, like how the company gets money, who runs it, how profits are shared, how shares are sold, how to deal with deadlocks, and how shares are valued. 

It covers important points like:

  • How shares should be priced fairly and correctly, especially when they’re being sold; 

  • How shareholders decide who else can become a shareholder in the future; 

  • How interests of shareholders who own a smaller portion of the company will be protected. 

When should a Shareholder's Agreement be put in place?

It’s usually best to create a shareholder’s agreement when there’s more than one shareholder, either when the company is formed or later. This makes sure everyone has a clear understanding of what they expect from the business. 

While some may delay discussing a shareholder’s agreement to focus on what may seem like more pressing activities, waiting too long may make it harder to agree on the terms of the agreement. 

What is included in a Shareholder Agreement?

Shareholders' agreements often set rules requiring all directors or shareholders to agree before certain actions are taken. They also detail how profits are shared between shareholders each year, even if a shareholder stops working for the company.

A shareholder’s agreement may contain: 

  • Introduction: Identifying the company and its shareholders

  • Objectives: The reasons and aims of the agreement

  • Dates and Details: When the agreement was made and share issuance details

  • Capitalisation Table: Showing shareholders and their ownership percentages

  • Buyback Terms: Conditions under which the company can repurchase shares from a selling shareholder

  • Share Transfer Rules: Guidelines for selling or transferring shares:

  • Pre-emptive Rights: Existing shareholders’ ability to buy more shares to maintain ownership of new shares is issued.

  • Right of Refusal: Company’s option to buy back shares before they’re offered to others; 

  • Share Price: Annual review or specific formula for share valuation

  • Sale Proceeds Distribution: How shareholders will be paid if the company is sold

  • Insurance Coverage: relevant policies related to the agreement. 

Sometimes, agreements include a ‘tag along’ right for fair treatment of all shareholders or a ‘drag along’ right forcing minority shareholders to sell when the majority does.

The agreement may also grant the company authority to take legal action against a misbehaving director, even if they're a major shareholder controlling the board.

Additionally, some rules in a shareholders agreement may prevent shareholders from competing with the company's business or specifying how shareholders should contribute additional funds if needed.

What’s the difference between Articles of Association and a Shareholders’ Agreement?

Articles of association are legally required public documents. Companies must follow their articles as required by law. 

Shareholders’ agreements are private contracts. While not mandatory, parties involved are obliged to follow its terms and, if one party breaches the agreement, the others can take legal action against them. 

Some problems with relying solely on standard articles of association include: 

  • Directors can be removed by a 50% vote of shareholders.

  • The company can’t be bound to specific actions or agreements. 

  • Even majority shareholders can be outvoted by other directors. 

  • Shareholders’ protections can be removed by a 75% vote. 

  • Deadlocks are challenging to resolve through the articles. 

That’s why it’s often better to have detailed provisions in a shareholders’ agreement to address these issues. While a company’s articles of association and company law offer some protection, a well-drafted shareholders’ agreement can provide additional safeguards against various scenarios. 

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What are the different types of shareholders’ agreements? 

Company law applies differently to public and private companies. 

In public companies, where shareholders and directors are separate, directors are hired by shareholders to run the company with a focus on the interests of all shareholders. 

In contrast, private companies often have fewer shareholders who also act as directors. In these cases, a shareholders agreement is important to protect the rights of all shareholders, especially in areas not covered by the company’s articles of association. 

Minority or equal shareholdings 

Many shareholders’ agreements are created to protect minority shareholders or those with equal shareholdings in private companies. In these companies, minority shareholders, who own less than 50% of the shares, can be vulnerable because there are usually fewer shareholders. This means control of the company often lies with just one or two people, even if no single shareholder holds the majority of shares. 

While there are legal options available to prevent unfair treatment of minority shareholders under the Companies Act 2006, these remedies can be uncertain and expensive. It’s better to prevent such issues upfront by having a shareholders’ agreement and articles of association that include protections for minority shareholders. 

Majority shareholders’ agreements 

Majority shareholders’ agreements are useful for those with less than half of a company’s shares and majority shareholders. 

For example, a majority shareholder might want to limit the power of directors if they don’t have a majority representation on the board or aren’t actively involved in running the business. Alternatively, they might want the ability to sell all the company’s shares if a buyer comes along, preventing a minority shareholder from holding them back. They might also want to consider clauses regarding non-competition, confidentiality, and financial contributions from other shareholders. 

Without a shareholders’ agreement, disputes between shareholders and directors must be settled according to the company’s articles of association, which outline how the company operates, including the division of power between shareholders and directors. 

A shareholders’ agreement provides a contractual remedy if its terms are violated, while the articles of association may only prevent certain events from occurring in the first place. 

What are the advantages of a shareholders agreement?

Clear cost sharing 

Shareholder's agreements determine how costs are divided if shareholders guarantee the company’s liabilities. 

By specifying how costs are shared if shareholders guarantee the company’s debts, the agreement prevents misunderstanding and conflicts.

Clear cost-sharing rules also help maintain the company’s financial stability by making sure that all shareholders contribute their fair share towards covering the company’s debts. 

Clarification of key aspects

A shareholders agreement outlines important details like auditing, banking arrangements, and office location. 

Requiring unanimous agreement for decisions regarding these key aspects promotes transparency and teamwork among shareholders, preventing unilateral actions that could disrupt the company’s operations and encouraging collaborative decision-making. 

Providing a clear exit strategy 

In a shareholders agreement, the rules are laid out on what happens when a shareholder wants to leave, offering first refusal to remaining shareholders to buy the shares. 

Giving existing shareholders the first choice to buy a departing shareholder’s shares helps keep control within the company. These rules also help prevent conflicts that could come up if shares are sold to outside parties without the consent of existing shareholders. 

Establishing methods for valuing shares 

By establishing methods for valuing shares, including the option to involve independent experts if necessary, the agreement provides a clear and objective way to assess the worth of each shareholder’s investment. 

This helps prevent disagreements and disputes among shareholders regarding the value of their shares. Additionally, having a reliable valuation method can facilitate smoother transactions, such as share transfers or buyouts, guaranteeing that all parties agree on the value of the shares.

Allowing the company to repurchase shares 

Shareholder agreements allow companies to buy back shares if remaining shareholders decide not to purchase them. 

Having buyback provisions in place provides a way for the company to keep control over its ownership structures while protecting the interests of its shareholders. 

Providing guidelines for selling shares to third parties 

Provisions for third-party sales help safeguard the interests of existing shareholders and the overall stability of the company.

They make sure that sales of any shares to outsiders are conducted in a manner that respects the rights and preferences of existing shareholders, reducing the risk of conflicts or dissatisfaction. 

It offers a way to resolve stalemates

In companies with two equal shareholders providing mechanisms for deadlock resolution makes sure that decision-making can continue even if shareholders disagree. 

This allows the company to move forward with important matters and offers clear processes for resolving standoffs. 

While some may never need to use a shareholders’ agreement, many regret its absence when an issue arises. 

Therefore, if you’re entering into a business partnership and want assurance about your future relationships, a shareholders agreement is a great way to gain peace of mind by safeguarding the business and protecting your investment. 

How can Lawhive help?

At Lawhive, our expert corporate law solicitors can draft and review shareholders' agreements to match your needs. 

Contact us for advice on shareholders' agreements and a fixed fee quote for the legal support and advice you need from drafting and review to assisting you with corporate disputes.

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