October 3rd, 2016

Do I need a shareholder’s agreement to set up a UK company?

Shareholder’s agreements are a useful way of ensuring that all shareholders, the owners of the company, are on the same page about what should happen should certain eventualities occur. It is not a legal requirement to have a shareholder’s agreement, but in most circumstances, it is advisable to have one to avoid any legal difficulties in the future.

Who needs a shareholder’s agreement?

If you are looking to set up a UK company, deciding whether to create a shareholder’s agreement is an important consideration. In UK law, most decisions are taken by the directors of the company – shareholders have a few, albeit important rights pertaining to the running of the company. However, under UK law, a majority vote in respect of the decisions reverted to shareholders will prevail and as a result, a shareholder’s agreement may be required to protect the rights of minority shareholders.

A good example of such circumstances is where you set up a quasi-partnership. This is where a company is set up with the understanding that regardless of shareholding, all shareholders will have an equal say in the running of the company – much like in a partnership. They may also agree to have an equal share in the success of the company and equal access to information. Under these circumstances, a shareholder’s agreement can be used to circumvent the usual company law rules.

Shareholders may often consider a shareholder’s agreement unnecessary, instead choosing to rely on their trusting relationship and cooperation. Many business partners may also find it challenging to discuss ‘what if’ scenarios so early in the life of setting up their business in the UK. However, the circumstances that can be set out in the shareholder’s agreement can and frequently do happen. If your relationship with other shareholders deteriorates or the business is not going well, you can save significant time and money if you already have a shareholder’s agreement in place outlining what should happen.

The discussions you have with your partner and a legal or business adviser before creating a shareholder’s agreement will also inform you about how your business partner’s views on how the business should be run differ from your own. This can be an exceptionally useful discussion, allowing areas of contention to be dealt with from the outset.

To find out more about whether a shareholder’s agreement is right for you when setting up business in the UK, contact Goodwille today.