Benefits of Having a Shareholder Agreement

The company’s charter is a document establishing the rules governing the internal affairs of the company. As a rule, such a document is a mandatory requirement for registering a company in England or any other jurisdiction. The charter of a legal entity includes provisions relating to meetings of the board of directors, meetings of shareholders, powers of directors, and also the rights of shareholders of a company. As per the Law on Companies, all companies must have constituent charters. 

You can develop the charter yourself or retain services of law firms. IQ Decision UK assists in drafting statutes for the establishment of a company in England.

In addition to this document, shareholders of the company may also vote for concluding a shareholder agreement. Being an agreement between the shareholders of the company, it establishes procedure for managing the company and also the rights and obligations of the shareholders.

At first glance, it may seem that both documents are identical. However, the drawing up of a shareholder agreement is not legally binding for opening a company in Great Britain or other jurisdictions. Such a document is not required for the functioning of a full-fledged & functioning company either. Therefore, businesses can rely solely on their own charters. However, the existence of a separate shareholder agreement provides a number of advantages, including legal support of the company's activities in England:

• Despite the fact that the company's charter provides for some protection of shareholder rights, concluding an agreement by shareholders will be able to provide additional clarity for minority shareholders and majority shareholders.
• The agreement may include provisions regarding dispute resolution methods, including resolving a commercial dispute through mediation or arbitration. 
• Developing a shareholder agreement for a company can give shareholders more voting rights in managing an enterprise. As a rule, directors have the right to manage the “day-to-day” activities of the company; however, the shareholders agreement may contain certain provisions requiring approval by the shareholders.
• A shareholder agreement broadens the capabilities of shareholders by providing them with more information about the company (e.g. a business plan or specific financial information). Having access to such information enables shareholders to control their investments and monitor the effectiveness of their business.
• The shareholder agreement may also contain special provisions on the protection of confidential information. This is a key factor in ensuring that any confidential information disclosed to shareholders is not shared with or used by 3rd parties. If you intend to protect your company’s confidential information, such restrictions may remain in place even after the termination of the shareholder agreement. To ensure further protection from competitors, it is also possible to add a non-competition clause to the agreement.
• Unlike the articles of association, a shareholder agreement may be confidential because there is no requirement in the UK to provide a Shareholders Agreement to Companies House.

Shareholder agreements are usually concluded for the establishment of joint ventures and investment projects. In this case, the shareholder agreement can provide comfortable and safe conditions for shareholders / investors in their new project, setting forth any rights and restrictions that may be necessary for the functioning of the investment business in the UK. However, shareholder agreements can be useful in other cases, such as opening a company with several shareholders in England.

If the founders of the company determine that the shareholder agreement is not necessary and that only the articles of association are sufficient, then it is necessary to draw up the articles of association for a UK-registered company. It should include all the provisions reflecting the conditions for managing the company and the rights of the shareholders. The decision to conclude a shareholder agreement should be taken at the initial stages of opening a business in the UK.