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.
This is a short form agreement which creates a contractual relationship between the shareholders above and beyond its articles of association. It is designed for private companies in which each shareholder will own an equal share, so there are no minority or majority shareholders. This template does not allow for the issue of new shares to the shareholders.
The main advantage of a shareholders' agreement is that in addition to enforcing shareholder rights against the company under its constitution, it allows individual shareholders to enforce their rights under the agreement against each other, providing more protection from the possibility of being squeezed out by the management of the company.
This Basic Shareholder Agreement - No Share Issue is well suited to family companies. It sets out the basic elements of the shareholders’ relationship with each other and includes the right to first refusal (pre-emption) for the parties should one shareholder wish to sell their shares, helping to prevent outside investors from muscling in on the company. Furthermore, anyone to whom shares are transferred must agree to be bound by the terms of this agreement as a precondition to the transfer.
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 of this Agreement 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.
At the front of the agreement, we have attached a set of specific guidance notes 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.
Square brackets are used to denote optional words and phrases or an either/or choice. If the wording is required, the pair of square brackets should be deleted. If the wording is not required, then the pair of square brackets and the wording in between should be deleted.
This Shareholder Agreement is in open format. Either enter the requisite details in the highlighted fields or adjust the wording to suit your purposes.
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