Shareholders Agreement For A Startup Company

Shareholders Agreement For A Startup Company

Starting a new business can be an exciting but challenging process. Once you’ve incorporated and registered your limited company, you should consider the following steps, such as drafting a shareholders’ agreement.

As a multi-shareholder startup, it’s important to have a formal shareholders’ agreement to protect you from the unexpected. and future issues among shareholders that may affect the company’s operations. The terms of the agreement can remain confidential between shareholders. This blog looks at what a shareholders agreement is, what it contains, what protections it offers and how it can protect your company in the future.

What is a shareholders agreement?

A shareholders agreement is an important agreement between shareholders of a company. It explains how decisions are made, what happens when a shareholder wants to leave the company, how disputes are resolved and other important aspects of your business. It sets out the rights and obligations of shareholders together with the statutes of the company.

Do I need a shareholders agreement?

If you are setting up a limited company with more than one shareholder, you will need a shareholders agreement. Even if you are setting up a company with friends or family that you know and trust, it is still good practice to have a shareholders agreement that states some ground rules , making sure everyone understands the agreement and avoiding or reducing future conflicts if things change or as the business grows.

What does a shareholder agreement contain?

There is none. set a standard for shareholder agreements, it can contain anything you want. It is important that the founders and shareholders of the startup agree on what is included in the contract. Such agreements often contain clauses and information in the following areas:

What happens if a shareholder leaves, dies or goes bankrupt?

A shareholder agreement usually contains provisions about what happens if a shareholder dies, goes bankrupt, leaves or withdraws company. This is an important area of ​​protection for the future of the company. This section can include information about how the shares are valued and valued in such a case.

What happens if the shareholder or shareholders want to sell?

This can limit who a shareholder may transfer his shares to or for sale. It may require the consent of another shareholder or director if the shareholder wants to sell his share of the company. You may want a clause that states that other shareholders have priority to buy shares in such circumstances. It may also include pull or tag clauses that force a shareholder to sell their shares if a majority agrees to sell the company.

If an offer is received to buy all of the company’s stock, “pull” provisions allow majority shareholders to force minority shareholders to accept the deal. This prevents a potentially difficult shareholder from blocking or preventing the sale. Subscription of rights provides protection to minority shareholders so that if the majority shareholders receive an offer for their shares, the minority shareholders can force the majority shareholders to guarantee an extension of the offer to minority shareholders.

Decision-making process and the board

As your company grows, you can create a board of directors and the shareholders step back from the day-to-day operations of the company, so the shareholders’ agreement can state what happens. if the shareholders disagree with the decisions of the board. It may also detail the appointment and dismissal of directors, executive remuneration and compensation, including how and when dividends will be paid. New shareholders and future share issues. The agreement will also usually cover what happens when new shares are issued, as this may be subject to the dilution of the value of the holdings of the current shareholders.

Disputes

The shareholder agreement may contain provisions on dispute resolution, ie. how disputes between shareholders are resolved. This may include hiring a third-party arbitrator before an impasse. If the shareholders are unable to reach an agreement, this may include the possibility of one shareholder leaving the company to resolve the dispute.

Capital

If the company is a startup, the shareholder agreement may sometimes provide for a shareholder call. participate in the financing of the company, for example as working capital.

Limitations in Shareholders’ Agreements

The Shareholders’ Agreement may impose restrictions on current or departing shareholders. For example, it may restrict the departing shareholder from starting a competing business or divert customers from the current business for a period of time. It may contain provisions requiring all directors and shareholders to keep confidential all matters relating to the business of the company.

Voting rights

Traditionally, one share is worth one vote. So in most companies, a shareholder who owns more than 50% of the shares can make decisions and control the company. However, sometimes it can be beneficial for everyone to have the same say or an equal voice, or to give some people more rights. Your shareholders’ meeting may cover this field.

Does the shareholders’ agreement supersede the articles of association?

No, the shareholders’ agreement does not supersede the articles of association. If there is a conflict, the articles are important. However, you can include a clause in the shareholders’ agreement that states that, in the event of a conflict, the shareholders and directors will work together to amend the bylaws so that they agree with the provisions of the shareholders’ agreement.

The main purpose of any agreement is to protect the shareholders and the company. The shareholder agreement is one of the most important legal documents you will draft during the startup. You need to make sure it meets your needs and is tailored to your startup.

Drafting a shareholder agreement can seem like a daunting process, and even though it comes with templates available, it can be difficult to know what to include and how to word it. It’s a good idea to invest in a solicitor to help you through this process as this one off fee could save you thousands of pounds later. If you have any questions or want expert advice feel free to contact GNS Associates.

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