Continuing the series of examples of important provisions in a Shareholder Agreement.

4. Important decisions

It may be desirable that the normal company law framework and standard articles of association are overruled so that the agreement of all the shareholders (or a stated % of them) is required for certain important decisions – such as the company:-

  • incurring indebtedness above a certain level
  • changing its name
  • disposing of assets
  • carrying out new business activities
  • entering into contracts above a certain value
  • appointing or removing a director
  • merging, entering into any partnership or joint venture

This will ensure all shareholders’ exposure to risk is minimised as people acting contrary to what is in the Shareholder Agreement will become personally liable.

There are many other matters where enhanced decision making powers for shareholders are in order and this is a major protective function of a Shareholder Agreement. 

5. Dividend policy

One way in which shareholders expect to see a return on their investment is through payment of dividends, however when and if a company pays a dividend will depend on a number of factors including whether it has made profits which it is entitled to distribute as dividends and also whether the directors have agree that a dividend should actually be paid. So the payment of a dividend is not guaranteed. In order to try to bring a degree of certainty to this, a Shareholder Agreement might contain a dividend policy. This is simply an agreement as to when dividends will be paid and how the amount of the dividend is to be calculated.

Nothing in this awareness article is intended as legal advice. If you have a specific legal requirement or query you should consult a solicitor directly.