A shareholders’ agreement is an agreement between some or all of the shareholders of a company intended to regulate their relationship and certain related matters. Although they are often drafted in conjunction with the company’s articles of association, they have certain advantages over the articles of association including:

• They are a private contract and therefore can be made confidential;


• They can impose obligations on shareholders beyond those permitted under the articles of association; and


• They can be a more flexible document than the articles of association.

We would always recommend that where there is more than one shareholder of a company, they give serious consideration to entering into a shareholders’ agreement in order to regulate their proceedings. The time and effort involved in agreeing a shareholders’ agreement is often more than repaid by the savings resulting from reduced disputes and tensions later in the life of the company.

The different form and provisions of a shareholders’ agreement are numerous and we could not hope to set them all out here. However, we have included some of the more common features of a shareholders’ agreement for your information.

A shareholders’ agreement is often tied to an investment by one or more of the shareholders and the shareholders’ agreement will often double as an investment agreement setting out the terms and manner of the investment.

As well as any initial equity investment of the shareholders, the shareholders’ agreement may provide an indication of where further financing of the company will come from.

This may come from further equity and/or loans from the existing shareholders; potentially enticing equity investment from new shareholders; or bank debt.