Commercial and Business Contract Solicitors in London | Hudson McKenzie
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Commercial Solicitors London

Being a shareholder in a company can be a very attractive position to be in. Not only will you get to play an active part in deciding, along with the firm’s management, the overall direction of the business, you will also likely be able to benefit from the business’s success through dividends.

However, it should be pointed out that shareholders also deal with a significant degree of risk. Circumstances can be complicated and shareholders’ interests can be overruled in situations where they only enjoy a minority interest in a business, with no way of influencing decisions agreed by the majority. It is in these instances that a Shareholder Agreement can be very useful.

At Hudson McKenzie, our commercial solicitors in London are routinely asked to advise on the use of Shareholders’ Agreements for various different kinds of business. If this is something that you would like to know more about, our team will be happy to speak to you.

What is a Shareholder Agreement?

As owners of a company, shareholders will not want their business to be ran in such a way that the value of their shareholding is decreased, or for decisions to be taken by those with significant share holdings, i.e. majority shareholders, which could damage the long term sustainability of the business. A Shareholders’ Agreement is essentially a contract between the shareholders in a company – regardless as to their actually shareholding regulating certain matters such as how voting rights will be regulated and disputes between shareholders will be resolved.

How do Shareholder Agreements work?

While Shareholders’ Agreements are drafted to reflect particular circumstances, generally they will prevent any majority shareholder from using their holdings in a company to force other shareholders into a particular decision. In other words, they prevent an abuse of power.

The point of these agreements is that, without them, decision-making on company business will rest with those who have the most voting rights. This would not normally be an issue in everyday decision-making, but could have a significant impact when dealing with decisions that affect the way the company is run, or in major decisions affecting the business’s future.

What should normally be included in a Shareholder Agreement?

It is difficult to prescribe what should be contained in a Shareholders’ Agreement – their content will be based on the particular business they are related to. However, it is important to understand that without a Shareholders’ Agreement, shareholders that have a larger holding in a company are afforded more rights under UK company law.

They may decide to influence the appointment of directors to reflect their interests, drain the business’s finance or attempt to dilute the existing shareholding of the company. Shareholders’ Agreements, generally, are used in order to restrict the ability of majority shareholders to take these kinds of decisions, thereby protecting the interests of other shareholders and the stability of the business.

Who can help in creating a Shareholder Agreement?

Hudson McKenzie is a leading provider of corporate law advice to businesses of all sizes, operating across a range of sectors and industries. Our team are pragmatic, commercially minded lawyers who draft Shareholders’ Agreements that are tailored to the needs of the business, and prevent majority shareholders from abusing their power to the detriment of their fellow shareholders.

Contact our Corporate Solicitors in London

For further information, please contact our Corporate Solicitors in London – click here or call us on +44 (0)20 3318 5794.