Put simply, a shareholder agreement is a contract between the various shareholders in a company. Its purpose is to set out and regulate the shareholders’ commercial relationships with each other, as well as with the directors and the company as a whole.

There is no legal requirement to implement a shareholder agreement for your business, but it serves as a key aspect of structuring a new or recently acquired company – particularly as it should help to reduce the potential for any disputes or disagreements.

It is often the case that shareholders agreements are used in conjunction with articles of association to manage how the company should be run.

A shareholder agreement can be adjusted to include any provisions the relevant parties feel is necessary. Typically, shareholder agreements will include the following:

• The rights and responsibilities of the shareholders
• The rights and responsibilities of company directors
• Provisions that deal with the transfer of shares
• Protections for minority shareholders
• Provisions for the unexpected death of a shareholder
• Dispute resolution methods
• Confidentiality and restrictive covenants

Yes, a shareholder agreement is considered to be a legally binding contract once it has been signed by all parties. This is assuming that the contract itself fulfils the criteria of a legally binding contract, in that there is an offer, acceptance, consideration and intention to create legal relations.

A shareholders agreement establishes the contractual relations between the shareholders. The articles of association is a contract between the shareholders and the company itself.

It is not a requirement for a shareholders agreement to be filed at Companies House, unlike articles of association, which must be filed according to the Companies Act 2006.

Shareholders agreements are likely to provide additional important protections for shareholders that the articles may not necessarily cover. This is especially true for protecting minority shareholders, or providing methods for resolving disputes.

There are various reasons why entering into this may be the right decision, depending on the circumstances.

For example, a shareholders buyout agreement allows your business to plan in place for any unexpected circumstances (such as a shareholder suddenly departing) and shareholder purchase agreements clearly set out the terms and conditions that would relate to the sale and purchase of a company and a silent shareholder agreement allows a shareholder to engage with the profits of a company without handling the day-to-day tasks of running it.

Having these sorts of agreements in place not only helps to clearly establish the rights and responsibilities of shareholders but also helps to reduce the potential for shareholder disputes, which have the potential to be very damaging.