With any new venture (or with a successful business that needs investment) there will usually be multiple parties involved. Some bringing skills and experience to the table, others bringing investment and connections, perhaps others putting in assets (such as property or intellectual property). Each of these people will probably become shareholders in the (new) company (the owners). Some of them will be directors (the management).

The Companies Act 2006 sets out what powers and authority each of these people have and, in the case of shareholders, gives differing powers depending on their level of shareholding. Someone holding over 25% can block certain resolutions, someone holding more than 50% can pass other resolutions, but not all. The holder of over 75% can pass all resolutions, subject to the points made below.

Despite the many things which the Companies Act does prescribe and specify, there are many more which it does not address. Even where it does set out a rule, it is normally open to the shareholders of a company to agree whatever they wish in the contract between them. They can, for example, require that the directors obtain consent from 100% of the shareholders to do specific things, such as selling the company’s business.

The contract between the shareholders is normally set out in a shareholders’ agreement and the company’s Articles of Association. The latter document contains the “bye-laws” of the company. It sets out rules on how director and shareholder meetings are held, when shares can be issued or forfeited, what limits on transferring shares might apply and so on. The document can also change the percentages of shareholders required to pass a resolution, or to prevent a resolution from being passed.

Often, everything required can be set out in this document which has advantages. The main disadvantage is that it is a public document required to be filed at Companies House, so anything which the shareholders might want to keep private needs to be dealt with in the shareholders’ agreement. This would extend to things like a shareholder lending money to the company and the terms of repayment, restrictive covenants and other internal business arrangements.