Shareholders’ & Partnership Agreements

A shareholders’ agreement is a private contract between the shareholders of a company. It sets out how the business will be managed, how important decisions will be made and the rights and responsibilities of each shareholder.

It can also explain what should happen if a shareholder wants to leave, sell their shares, becomes unable to work or dies.

Articles of Association provide the company’s constitutional rules, but they are not always tailored to the particular needs of the shareholders or the business.

A shareholders’ agreement can provide additional protection and greater clarity around matters such as voting, share transfers, dividends, exits and dispute resolution.

The terms will depend on the business and the relationship between the shareholders. Common provisions include voting rights, management responsibilities, dividend policies, share transfers, valuation methods, new investment, restrictive covenants, exit arrangements and procedures for resolving deadlock.

A shareholders’ agreement can require certain important decisions to receive the approval of all shareholders or a specified percentage of them.

It may also include information rights, protections against the issue of new shares, pre-emption rights and provisions allowing minority shareholders to participate in a sale of the company.

The agreement can set out a clear process for transferring shares, including whether they must first be offered to the existing shareholders and how the price will be determined.

It can also restrict transfers to third parties or permit transfers to specified family members, trusts or other approved recipients.

A shareholders’ agreement can include a valuation mechanism to help avoid disagreements when shares are transferred. This may involve an agreed formula, a valuation by the company’s accountant or an independent professional valuation.

Different valuation rules may apply depending on the circumstances in which the shareholder leaves.

A deadlock occurs when shareholders cannot agree on an important business decision and neither side has sufficient voting power to resolve the issue.

A well-drafted agreement can include a staged process involving negotiation, mediation, independent determination or a mechanism allowing one party to buy the other party’s shares.

The agreement can explain whether the shares pass to the shareholder’s estate, must be offered to the remaining shareholders or are dealt with through an insurance-backed purchase arrangement.

Planning for these circumstances can help maintain continuity and prevent uncertainty for the business and the shareholder’s family.

A partnership agreement is a contract between the people carrying on a business together as partners. It can set out how profits and losses are shared, how decisions are made, the responsibilities of each partner and what happens when a partner joins or leaves.

Without a written agreement, the partnership may be governed by default legal rules that may not reflect what the partners intended.

This can create uncertainty around profit sharing, decision-making, ownership of assets, retirement and the circumstances in which the partnership may be dissolved.

Yes. Agreements should be reviewed when ownership changes, new investors join, the business expands or the shareholders’ roles and objectives change.

We can review an existing agreement, identify areas that may no longer be suitable and prepare amendments or a replacement document.

A well-drafted agreement cannot prevent every disagreement, but it can reduce the risk of disputes by setting clear expectations and establishing agreed procedures for dealing with difficult situations.

Resolving these matters in advance is usually more straightforward and cost-effective than trying to reach agreement after a dispute has already arisen.

Yes. Our Corporate & Commercial and Dispute Resolution teams can advise on the terms of the existing agreements, the rights of the parties and the options available for resolving the dispute.

Where possible, we will look for a practical commercial solution through negotiation or mediation. We can also advise on formal legal action where this becomes necessary.