If you want to set up (or already have) a private limited company with other things important for your success, it would be a Shareholder Agreement.

A Shareholder Agreement is what every company which has more than one shareholder should possess as security, which, can be very helpful in the future. It looks like a document relating to the ownership and management of the company which has to be signed by all shareholders. Shareholders agreement contains the particular rules by which the ownership of a company is held and as a private arrangement between the shareholders helps avoid problems in running the company. As any private limited company regulated by the Companies Act 2006, any disagreement needs to be decided by the Court and this can be very costly and cannot always go accordingly to your plans.

In a limited company, each share carries a prescribed number of votes (Usually 1 share - 1 Vote).  In most cases all the shares are of the same class - ordinary shares.  That means that over 50% of shares control the company.

There are many situations where the shareholders are not happy with such an arrangement and instead of the Articles using a shareholders agreement, which provides a more equal distribution of power and  protects a minority from exploitation.

There are a number of reasons why the shareholders must wish to supersede the constitutional documents of the company, including:

1. As the company’s documents are normally available for public inspection shareholders can make a private agreement (law contract) which are strictly confidential.
2. Shareholders have formed a private limited company for a specific purpose. This way a shareholder agreement is generally cheaper and less formal to incorporate a business.
3. The shareholders might wish to lent substantial amount of money to the business but have a position where they do not want to be involved in management (as a directors) and a position to control the company’s business outside of a general meetings.
4. Any changes can be easy organized rather than in the official company documentation.
5. Provides a basis for the resolution of disputes.
6. Prevents the state where changes in one shareholder’s personal conditions can have an effect on the company.

As you can not predict your future, you need to make provision for any alternative events, which might include:

1. Sale of the company.
2. Sale of the business (part) out of the company.
3. Some shareholders buy the others out.
4. A public placing of shares.
5. Other third party capital.
6. The assets are sold and the company wound up.

Once you have decided to order your custom-made Shareholder Agreement, please Contact Us.

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