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Operating a Company – Shareholders Agreements
A company is a separate legal person from the people who own and run it. The owners are the shareholders. The people running it are the directors. The shareholders always have a degree of control over the directors but very often, they are the same people who have to act in two separate capacities.
Decisions by the shareholders are usually made by resolutions passed by a simple majority (over 50%) of the shareholders. It is important to identify the rights of the shareholders and how they should treat each other while they remain owners of their shares.
Problems can arise in a number of circumstances such as:
- How a shareholder who is leaving can sell his shares and to whom
- How the remaining shareholders pay a departing shareholder if they are buying out his or her shares and for how much
- Deadlocks between directors or shareholders
- A majority wanting to take steps which would prejudice the minority
- A disagreement on whether any particular shareholder should be a director or which director, if any, is to be in overall charge
- What to do in the case of one director shareholder misbehaving
We always advise that the shareholders of any company, and particularly a small one, enter into a shareholders agreement governing how these things are to be done. For example, the agreement can require a higher percentage majority or even unanimity for some important decisions such as changing the nature of the company’s business, its name or the classification of its shares. It can also include “drag and tag” provisions where the shareholders are made a good offer for the purchase of the company which a minority do not want to accept.
The shareholders agreement is not a public document and is not registered at Companies House. It can avoid a lot of difficulty and even remove the need for litigation if there is a serious problems.