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In our article, we will analyze such a legal instrument as shareholder agreement and its influence on the relationship between the participants (shareholders) of the company in accordance with UK legislation.

The main regulations that govern the legal relationship on the incorporation, activities and legal status of the companies in the UK are Companies Act 2006, Partnership Act 1890, Limited Liability Partnership Act 2000, Insolvency Act 1986 and others.

As a shareholder agreement applicable to private limited liability companies, legal act, which regulates the status of joint agreements, is the Companies Act 2006. Also, it is worth remembering that in the first place, a shareholder agreement is a contract, so it is also governed by the rules of the law of contract of the country.

A shareholder agreement is a separate contract, which is concluded between the members of the company, based on which the participants build management mechanism of such a company. A shareholder agreement may be concluded between both all members of the company, and some of them. In addition, the party of the shareholder agreement may serve the company itself in the person of its director (manager). In those cases when a party to the agreement is the company itself, it is very important to make the provisions of the contract the way that does not limit the powers of the company, established by the law. Otherwise, those conditions of the agreement, which would change the legal position of the company, will be declared invalid and there is a high risk of invalidation of the shareholder agreement.

The main purpose of concluding a shareholder agreement is the protection of assets of the company by defining the detailed order of decision-making in the management of the company, which can affect the entire business as a whole, as well as minimizing the risk of disagreement between shareholders.

In the UK, a shareholder agreement is an important tool that gives the shareholders the freedom to choose the subject matter and its other provisions. UK legislation provides for only a few restrictions, namely the prohibition on the inclusion in a shareholder agreement the provisions contrary to law or public order. Otherwise, the participants are free to choose the issues of the activities and management of the company, which will be governed by a shareholder agreement.

Shareholder agreements can regulate the various spheres of the activity of the company, namely:

  • the procedure of entering into the new shareholders;
  • alienation of a share, the output from the shareholders;
  • the powers of participants and directors;
  • distribution of profits;
  • financial issues – investment, loans, etc .;
  • order and conditions of the meetings of shareholders;
  • conduct of the parties in the so-called situation of deadlock;
  • management of the company and resolution of disputes.

At first glance, either the charter company or a shareholder agreement regulate the same legal relationships and features of the activity of the company. Therefore, the question arises, what is the main difference between the two documents, and if there is a need to enter into a shareholder agreement in the presence of the charter.

From a legal point of view, the charter automatically binds the company and all its members rights and obligations stipulated by the charter. At the same time, a shareholder agreement is an act of the will of the parties who have entered into such an agreement. In other words, the provisions of a shareholder agreement do not apply to all members of the company, but only to those who acted as the parties to the agreement.

In addition, the provisions of the charter of the company may be changed by the decision of at least 75% votes of the participants (the so-called «special resolution»), but any changes in a shareholder agreement may be amended only on the condition of the unanimous consent of all parties to the agreement.

Another distinctive feature is that the charter of the company, including any changes to the provisions of the charter are subject to mandatory registration in the State Register of the UK (Companies House) and in connection with this the charter is publicly available. The shareholder agreement, in most cases, is a confidential document.

Thus, a shareholder agreement allows the shareholders to regulate in detail the mechanism of management and activity of the company and, at the same time leave its provisions confidential. In addition, shareholder agreements provide additional protection for the interests of shareholders, no matter what percentage of shares in the proportion they own.

To provide more information on this issue, please contact our experts.

The contact person
Anna Savchenko
Anna Savchenko
Partner, attorney-at-law, LLM
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