How can I get a shareholders’ agreement?

I’ve invested £30,000 into a new project, while a backer is investing £75,000. We need £75,000 more, but I’m worried we’ll lose track of how much equity is available. How can I get my shareholders and holdings into a clear and rational form?


A. James Knight writes:


You need to choose an appropriate commercial vehicle for the business. Most likely this will be a private company, limited by shares, as it will be versatile and is most popular with equity investors. Private limited companies can be bought ‘off the shelf’ or established quickly and inexpensively.

Next, you should decide what percentage of the company each individual is going to own. If you provide equal amounts of input then you’ll have an equal shareholding, although any agreement to the contrary is possible. You need to offer shares to the backer, and hold back a big enough percentage for future investors. These discussions and negotiations must be undertaken very carefully to ensure everyone gets a fair portion that they are happy with.

Once a commercial framework has been agreed, it is time to formalise matters to avoid future misunderstandings. While your accountant may be able to establish the company, advise on tax and issue share certificates, you will need a commercial solicitor to draw up a shareholders’ agreement for each shareholder to sign. This will include all the agreed terms and is essential to protect the rights of minority shareholders and cut the risk of disputes. The future investor of the £75,000 still needed may be prepared to sign the same agreement, although variations can be agreed.

Finally, consider that you may wish to create a share option scheme for future employees. Setting aside 5-10% of the share capital now will make it easier to create a share scheme if shareholders don’t have to give up equity. Taking the time now to ensure your company has really good, strong foundations will literally pay dividends long into the future.


James Knight is the founder and managing director of Keystone Law, a full-service law firm that advises small and medium-sized companies across the UK.



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