Running a business with other people can be exciting, but it’s not always plain sailing. Opinions differ, priorities change, and when money or control is involved, disagreements can appear out of nowhere. One of the best ways to protect your business with a shareholders’ agreement is to write down, at the very start if you can, how you’ll deal with those situations before they cause real damage.
Now, in Scotland, every company has to follow the Companies Act 2006 and put Articles of Association in place. The Articles set the ground rules, and they’re public for anyone to see. They do the basics, but they’re not designed to cover everything that crops up in day-to-day business. That’s why many owners add a shareholders’ agreement. It’s private, flexible, and designed to suit the people actually running the company.
What Does It Really Do?
Think of it as a safety net. It says who gets to decide what, how shares can be sold, and what happens if one of the owners wants to leave. It can even cover the tough stuff, like what happens if a shareholder dies. Without it, you’re relying on good faith and the basic Articles, which usually isn’t enough. With it, you’ve got a plan.
Why Consider One?
At the start of a new venture, everyone’s excited. Everyone’s pulling in the same direction. But give it a few years and things can look very different. Someone might want to sell up, someone else could bring in a family member, or a shareholder might simply lose interest. These things happen all the time. A shareholders’ agreement won’t stop them happening, but it makes sure they don’t throw the business off course. That’s why so many people in Scotland choose to protect their business with a shareholders’ agreement instead of leaving things to chance.
What Usually Goes In?
There’s no single template, but most agreements cover the same themes. Big decisions, like selling the company or issuing new shares, often need more than just the directors’ approval. There are also rules about share transfers. Minority shareholders often get “tag-along” rights so they can sell their shares if the majority do. Majority owners sometimes get “drag-along” rights, which let them insist everyone sells if a buyer wants the whole company.
Then there’s valuation. Without an agreed method, rows about price are almost inevitable. Many agreements set out how shares will be valued in advance, or they include buy-sell clauses so shares can move smoothly if someone dies or retires. Add in confidentiality obligations and restrictions on competing with the company once you’ve left, and you start to see how wide-ranging these agreements can be.
The Scottish Legal Angle
A shareholders’ agreement binds the people who sign it, not the company itself. In practice, that means shareholders can agree how they’ll use their votes, but the company keeps its own statutory powers.
Another point worth knowing is that the agreement has to sit alongside the Articles of Association. If the two clash, the Articles usually win when you’re dealing with outsiders. That doesn’t mean your agreement is pointless, it just means it should be drafted with care so both documents work together. Don’t forget jurisdiction. State clearly that it’s governed by Scots law and set out how disputes will be handled. It saves arguments later.
When Should You Do It?
The earlier the better. It’s far easier to agree terms when everyone’s still enthusiastic and on good terms. But if your company’s been around for years, don’t panic. It’s never too late. Plenty of businesses only put one in place after they’ve had a nasty dispute, or very nearly had one. Better late than never.
And keep in mind, businesses change. New investors arrive, people step back, and priorities evolve. An agreement written years ago might not reflect reality today. Review it, update it, and make sure it still does the job. If you’ve also got a will or estate plan, tie it in with the shareholders’ agreement so your shares pass smoothly to the right people when the time comes.
Final Thoughts
Choosing to protect your business with a shareholders’ agreement is about planning for the future. It won’t stop change, but it’ll give you clarity and security when change comes. With the right legal advice, you can put in place a document that’s practical, fair, and designed around your company, and that peace of mind is worth a lot.