Shareholders’ Agreement – do we need it?
Introduction
Many shareholders of a company enter into a shareholders’ agreement with each other as to how they will behave in respect of their company. However, the agreement is widely disregarded by many businesses as it is not a legal requirement. Some shareholders believe that nothing will go wrong in the future. Many shareholders consider an agreement unnecessary, as they could rely on their close friendship with other shareholders, to solve problems. Some shareholders also feel that if the provisions in an agreement, could also be included in the company’s articles of association, then why the need for a shareholders’ agreement? This article will explore what a shareholders’ agreement is and whether or not it is needed.
What is a Shareholders’ Agreement?
A shareholders’ agreement is a private contract between the shareholders of a company that creates legally binding obligations between shareholders. The agreement provides clarity on important matters that affect shareholders, such as their duties, and how disputes are to be resolved, for example. A shareholder does not have to enter into an agreement. If a shareholder enters into an agreement he must do so without compulsion. Agreements are not regulated by the Companies Act 2006, so there is no legal process under the CA 2006, to alter the agreement. Therefore, most shareholders’ agreements will normally state that all shareholders, who are a party to the contract, must give consent to amend it.
Do I Need a Shareholders’ Agreement?
Friendships with other shareholders could deteriorate without a well drafted agreement, resulting in expensive litigation. A minority shareholder can have more control in the running of a business, under an agreement, as all parties to the contract, must agree to an amendment. A shareholders’ agreement can include a shareholder’s personal rights which are contractually enforceable, for example, the right for a specified person to be appointed as a director. By contrast, if this right was included in the company’s articles, it would not be contractually enforceable under section 33 CA 2006. An agreement also allows for commercially sensitive information to be included, as it is a private document. The impact of Covid-19 has necessitated the need for a shareholders’ agreement. The pandemic has initiated changing circumstances for business owners, such as cash flow problems, a desperate need for investment, shareholders becoming incapacitated due to Covid-19. A shareholders’ agreement is essential as it can be tailored to suit the needs of the business and cover a myriad of situations.
Conclusion
A shareholders’ agreement is a crucial document that legally binds all parties and can avoid potential conflict between shareholders, especially as the company’s articles of association, do not provide adequate protection. Obtaining a bespoke shareholders’ agreement from MLS will ensure the effortless running of the business and provide it with the best chance to flourish financially. It is imperative that every company has a shareholders’ agreement, or an updated agreement, that grows in harmony with the business, and takes the impact of Covid-19 into account.
This article is for informational purposes only and does not constitute legal advice. Contact us today on 02144 478 730 to book your free, no obligation, consultation.
Author: Niresh Naidoo
Photo by krakenimages on Unsplash
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MLS celebrates: Doctor Ivy Williams
Doctor Ivy Williams was a pioneer for women who joined the ranks of a male dominated profession on the 10th May 1922. It is remarkable that in nearly a hundred years since women were able to be called to the Bar in England and Wales, we still see women under-represented in the legal profession. Despite this passage of time, the Bar Standards Board Annual Report 2019/20 records that women only account for 39% of barristers and the retention rate for women 10-15 years call is far too low. I am sadden but not surprised.
Add the demands of family and child care to the day-to-day challenges of an unrelenting workload with long hours, too many open files and, often, a general lack of support and one can quickly see why. It is women who often take the strain. Balancing work-life with home-life in a competitive legal world which often goes far beyond the ‘9 til’ 5’ risks burn-out.
One hundred years later and we are doing “our bit” here at MLS by challenging status quo and disrupting legal sector with our new firm model. We bring our consultants relief through offering another way of working in the law. With a support and mentoring programme which prioritises our team, flexible working and 100% control, we can help them thrive in tandem with enjoying their homelife.
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Join Us
ARE YOU READY FOR CHANGE?
If you are a solicitor with a current practising certificate and always fancied the idea of freelancing but do not want to give away the security, support and insurance which an established law firm provides, please continue reading…
I was always a strong believer that there is a better way of practising law. When I set up My Local Solicitor (MLS) in 2018, I had a clear vision of what I wanted the firm to become. I wanted to create a law firm in which solicitors from all over the country are able to be what they worked so hard to be: a solicitor.
To practice in peace, keep the majority of their billings and to grow both professionally and personally. Ultimately, to live a more balanced and happy life.
I know that the majority of people think we have it all, career, money and prestige but the truth is we need a support system and we all deserve to live happy, fulfilling lives, and yes, that includes solicitors, who on the face of it already have it all!
From what I have seen in recent years, too many solicitors are deciding that they simply can’t take the stress anymore. They often change careers out of pure exhaustion never reaching their full potential. All those years of education, experience and training lost (although the post-grad loan often remains reminding us about this “failure” like clockwork on a monthly basis). It would appear that too many good and honest professionals are no longer prepared to sacrifice their family life for an often-toxic working environment, overwhelming number of demanding clients and low pay.
MLS vison
What would happen if you kept the majority of your billings?
Well, suddenly, you don’t need to run hundreds of files at one go. You are not overworked and stressed. Your family life improves. Your attention to detail and quality of work improves. This makes you happy. You feel fulfilled. You know your client’s files inside out and it shows! You know exactly who the client is when he/she rings you (remember those awkward moments when you have no idea until you grab the file…). Your clients get the professional service they have probably never experienced elsewhere. Happy solicitor = happy client. Do you see how this works?
I have been trying to improve the situation one day at a time through building My Local Solicitor from scratch. Do want to join me in my mission? If so, please contact me for further details on freelancing with My Local Solicitor and share if you can. All legal disciplines considered.
Are you ready to take the leap?
We are looking for pro-active, motivated and entrepreneurial lawyers who are passionate about delivering legal services and obtaining a better work-life balance.
At MLS our approach is all about quality not quantity. We want to treat every single consultant with the care and attention they deserve. We intend to grow strong. Growing “fast” is not a priority. Our primary aim is to make MLS a superb and reliable environment for our consultant so they can grow and progress their legal carrier in harmony with their family life.
Better income
We all have a different vision of what success means for us. MLS offers a fairer financial reward, and complete control and flexibility over your career in law. You work how, when and where you want. The only targets you will ever have in MLS are the targets you set for yourself.
Full insurance
If you become one of our self-employed consultants, any work carried out under the MLS umbrella will be covered by our indemnity insurance.
Flexibility
Lawyers worldwide are no longer prepared to sacrifice their family life for an often-toxic working environment and an overwhelming number of demanding clients in return for a capped salary. MLS offers an ultimate alternative.
We believe that agile working is the way forward and that traditional working routines are much less affective in today’s reality.
Our self-employed lawyers have freedom to design and control the path their carrier is going along. Long hours, unrealistic targets and responsive rather than proactive culture is simply not on our radar. Our approach results in better work-life balance, better mental health and overall better productivity and effectiveness.
Support network
MLS will provide you with access to administrative, marketing, compliance and paralegal support to help you grow your client base and grow your career in law. If required, we can provide access to restrictive covenant experts, tax advice and planning, sourcing office equipment, secretarial support and much, much, more.
Do you want to find out more? Contact Marta today.
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