What are the benefits of a shareholders agreement?

There are many advantages to entering into a shareholders' agreement, including:

• It can be used to protect the position of minority shareholders by requiring unanimous approval for important company decisions
• It can regulate the appointment and removal of directors by allowing a shareholder or a group of shareholders each to appoint one or more directors
• It can regulate the raising of capital to avoid the dilution of shareholdings
• It can place restrictions on changes to the nature of the company's business
• It can also provide for the resolution of disputes where a deadlock occurs, through mediation and/or arbitration

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Whilst in general there are no disadvantages to having a shareholders' agreement, there are some issues that need to be considered before entering into one. The shareholders' agreement must be consistent with the company's articles and any subsidiary agreements such as loan and guarantee agreements. In addition, careful consideration is required to establish whether or not the company itself should be joined as a party to the shareholders' agreement.

All of these practical issues translate into a single consideration: whether or not the legal costs are worth the benefit of certainty and protection that the shareholders' agreement provides.

The information on this page applies to England and Wales only.