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Coddan CPM Ltd. – Company Registration Agent in the UK
Home Limited Companies Private Company Formation With Shareholders Agreement The Benefits of Shareholders Agreements

The Benefits of Shareholders Agreements

The benefits of shareholders' agreements

British Company Registration With Shareholders Agreement

The benefits of shareholders' agreements: when a limited company is created with shareholders it is important to ensure that both parties feel happy that they are covered should any changes or unfortunate circumstances arise. Upon a private company start up, the company limited by shares is required to have articles of association in place which set out how the relationship between the private firm and shareholders will be governed. However, this is by no means a comprehensive document; therefore, it is recommended that the organisation and shareholders have a shareholders' agreement drawn up.

The benefits of a company limited by shares registration and putting a shareholders' agreement in place include: -

  • The shareholders agreement ensures that both parties are legally covered over and above the articles of association
  • A shareholders' agreement gives more detail on what has been agreed between the two parties, setting out clear and enforceable terms for both the corporation and shareholders
  • Set out terms that remain private - a shareholders' agreement is not a matter of public interest, unlike articles of association and cannot be viewed by employees, customers or creditors
  • The shareholders agreement details how big company decisions, the decisions which involve the directors and shareholders, are dealt with
  • A shareholders' agreement can restrict the decision making powers of the directors when needed protecting investors and shareholders
  • A company registration with a shareholders' agreement is a cost effective way to set out the procedures for dealing with any disagreements and disputes between the directors, owners and shareholders
  • The agreement protects minority shareholders against decisions made by majority shareholders that may not be in their best interests
  • A shareholders' agreement can only be amended when all of the shareholders are in agreement; articles of association only need a 75% majority agreement
  • Having a shareholders' agreement in place demonstrates enterprise stability
  • If the company is looking for investment or credit with a supplier, having an agreement in place can increase confidence levels among creditors
If you are registering a private company and offering shares, it is worthwhile documenting the terms of the agreement and the responsibilities of both parties using a shareholders' agreement. It makes sense legally and can prevent entity owners disputes in the future.