Basic Shareholder Agreement - No Share Issue

This Basic Shareholder Agreement - No Share Issue may be used by shareholders where the company has only recently been incorporated or where it has been established for some time but the shareholders only now wish to put a shareholders' agreement in place.

This document has been updated for Brexit. References to data protection legislation have been updated with reference to the UK GDPR.

What this agreement is designed for

• A private company where each shareholder owns an equal share (so there are no minority or majority shareholders).
• A situation where no new shares are to be issued to the shareholders under the agreement.

This is a short form agreement which creates a contractual relationship between the shareholders above and beyond its articles of association.

Why shareholders use a shareholders’ agreement

A shareholders' agreement allows individual shareholders to enforce their rights under the agreement against each other, in addition to enforcing shareholder rights against the company under its constitution.

This can provide more protection from the possibility of being squeezed out by the management of the company.

Family company focus and transfer controls

This Basic Shareholder Agreement - No Share Issue is well suited to family companies and sets out the basic elements of the shareholders’ relationship with each other.

• It includes the right to first refusal (pre-emption) if a shareholder wishes to sell, helping to prevent outside investors from muscling in.
• Anyone to whom shares are transferred must agree to be bound by the terms of this agreement as a precondition to the transfer.

Relationship with the articles of association

This agreement assumes that the company will use its existing Articles of Association which are consistent with the terms of the shareholders' agreement.

Caution must be taken in case there are any inconsistencies between the two documents.

Clause 21 provides that the Shareholder Agreement will prevail over the Articles in the event of an inconsistency, but inconsistencies should nevertheless be avoided because claims for breach of a shareholders’ agreement are subject to different rules to claims for a breach of the Articles.

If there are any inconsistencies, the articles should be amended accordingly.

Guidance notes and complementary clauses

At the front of the agreement, a set of specific guidance notes is attached to assist in tailoring this agreement.

These guidance notes do not form part of the agreement and should be removed before the agreement is used.

Also available from the Simply-docs site and listed under our Complementary Documents are separate clauses which are ready to be incorporated into this agreement if required, including a deadlock provision and a shareholder employee dismissal clause.

Basic Shareholder Agreement - No Share Issue is part of Corporate. Just £38.50 + VAT provides unlimited downloads from Corporate for 1 year.