One useful provision of a shareholders’ agreement is the inclusion of reserved matters. These are specific decisions that the company cannot take without the prior approval of certain shareholders, they therefore protect the interests of minority shareholders, shareholders who don’t have a seat on the board (such as investors) or certain shareholder who wish to have the final say on certain decisions usually in the scope of directors’ authority.
Reserved matters are decisions that require prior express approval of certain shareholders, (i.e. the minority shareholder(s), investor shareholders, all shareholders or 75%+ majority consent- whatever is decided). Decision-making on such matters is therefore ‘reserved’ for the shareholders.
It is important that the list of reserved matters is clear, without being too prescriptive. If the list is too vague or too lengthy, it could cause problems for directors in day-to-day decision making. So reserved matters are not intended to include routine, everyday matters, but rather actions that could materially affect the finances of the company or specific shareholder rights.
By requiring shareholder consent for such decisions, reserved matters give minority shareholders a voice in matters that could impact their investment or the future direction of the company.
Typical Reserved Matters
The list of reserved matters you choose to create for your own company can be tailored to your needs. Some common examples of reserved matters include:
- Board structure and director appointments
The right to decide on the size of the board and the appointment or removal of directors. - Major corporate transactions
Significant actions like mergers, acquisitions, or selling parts of the business usually require shareholder approval. - Dividend and profit distribution
Decisions about when and how profits are paid out. - Changes to capital structure
Issuing new shares, reclassifying shares, or transferring shares. - Use and disposal of company assets
A say in how key assets are acquired, used, or sold. - Hiring and firing key people
Salaries of directors / senior staff and recruitment matters
The Need for a Well-Drafted Shareholders’ Agreement
Poorly drafted provisions can cause confusion or even render parts of the agreement unenforceable, that’s why it is important to seek legal advice when drafting your shareholders’ agreement.
Here are some top tips to remember with reserved matters:
- Be specific: Vague or catch-all lists of matters can result in delays and disputes. Clearly define each reserved matter and when consent is needed.
- Set appropriate thresholds: When drafting reserved matters provisions, don’t forget to consider the threshold of shareholder consent for each matter.
- Avoid legal pitfalls: If the provisions are too onerous, or infringe on the company’s statutory powers, they will be void.
- Align with the Articles: Conflicts between the shareholders’ agreement and the Articles can cause problems. Be sure to review both documents when any updates are made.
- Review regularly: As the business evolves, the reserved matters list should be revisited.
How can Bhayani Law help?
Including a schedule of reserved matters in a shareholders’ agreement is a great way to protect shareholder interests. When drafted carefully and reviewed regularly, they provide clarity, prevent disputes, and give shareholders confidence that critical decisions won’t be made without their input.
If you are considering implementing, or updating your existing shareholders’ agreement, our Company & Commercial team at Bhayani Law are here to help.
Get in touch with our experts on 0333 888 1360 or email [email protected]. We’re here to provide clear, practical advice tailored to your needs.
