Shareholder agreements

Every company with more than one shareholder should have a shareholder agreement setting out the rules for ownership of the shares and what is to happen if a dispute arises.

In a limited company, each share carries a prescribed number of votes. In most cases all the shares are of the same class - ordinary shares - and each carry one vote. That means that a majority (over 50%) controls the company.

There are many situations where the shareholders are not happy with the normal rules which apply to limited companies, such as the fact that each share carries one vote, and that a majority holding of over 50% gives the holder control of the company.

Using a shareholder agreement allows the parties to agree a different distribution of power and appropriate provisions can be included to protect the minority shareholder from exploitation.

A shareholder agreement will help you determine what is to happen if the shareholders fall out, or if a majority shareholder dies, and what rules will apply if one of the shareholders wants to sell their shares.