In order to determine the rules that will lead the internal affairs in a company, it is common to conclude the company’s charter. In fact, England and basically any other jurisdictions consider this document a mandatory to register a company. According to the Law on Companies, every company is supposed to have a basic charter. The charter specifies how the meetings of the board of directors are conducted, competences of directors, meetings of shareholders and their powers
You can create the charter by yourself and still avoid using services of law firms. Our professional at COREDO will assist you in the statute development for your company in England.
Besides the charter, it is also in shareholders’ power to vote to establish a shareholder agreement. This document concludes not only the process of company management but also the shareholders’ rights and obligations.
It can look from the first sight that two of the mentioned documents are somewhat similar. Yet, as a distinction from the charter, the shareholders’ agreement is not demanded by the legislation of Great Britain and other countries. The absence of it does not prevent a company from functioning fully. That is why companies often rely only on their charters. Nevertheless, there are several advantages that come with having a shareholder agreement:
- Regardless of the fact that there is already some protection of shareholders’ rights included in the company’s charter, the shareholders’ agreement can bring more clarity for them.
- The agreement can include rules that dictate the procedure of dispute resolutions, like commercial disputes solved via mediation or arbitration.
- The establishment of a shareholders’ agreement may also provide shareholders with more voting rights in the firm. While it is the directors’ prerogative to be involved in daily tasks, the shareholders’ agreement may include some provisions that require the shareholders’ approval.
- The shareholders’ agreement means them having more information and therefore more capabilities. The ability to have such private information like a business plan of a company gives the shareholders a chance to broaden their capabilities and control their investment.
- It is crucial to ensure that the confidential information about or belonging to shareholders stays safe. The shareholders’ agreements can include special provisions for this aspect as well. The protective restrictions can even stay valid after the functioning of the agreement. To guarantee protection from competitors, a non-competition clause can be added to the agreement.
- The UK does not require companies to bring a shareholders’ agreement to the Companies’ House, which lets the document a possibility to stay anonymous and confidential. The same cannot be stated for the articles of association.
It is common to conclude shareholders’ agreement during the creation of joint ventures and investment projects. It is done to ensure comfortable and safe conditions for shareholders and investors in the new project and inform them about any restrictions or rights related to conducting investment business in Great Britain. Another case where the agreement could be useful is the situation when the company has several shareholders in England.
The choice of having a shareholders’ agreement depends on the decision of company founders and whether they find the charter sufficient. It is best though to establish such an agreement at the early stadium.
If you are planning to create a charter for a company opening abroad and need information about concluding a shareholder agreement, visit or contact COREDO. We will prepare a consultation for you regarding your personal conditions.