The Review has joined forces with local solicitors Debenhams Ottaway to offer our readers the best legal advice.

Below Hugh Mulley, solicitor at Debenhams Ottaway answers, a reader's question.

Q: I own 25 per cent of the shares in a company. Three other people each hold a further 25 per cent, we are all directors. A friend has suggested that I should enter into a shareholders’ agreement. What is a shareholders’ agreement and would it be advisable for me to enter into one?

A: Hugh Mulley, solicitor at Debenhams Ottaway, responds: We are assuming that the company’s shares are all of the same class and do not carry any special rights nor are subject to any special restrictions.

A shareholders’ agreement is an agreement between a company’s shareholders setting out the general basis on which the company will be run. Typically the agreement will also give the shareholders a right of first refusal if any of them wants to sell their shares, these rights normally being referred to as pre emption rights. Sometimes the company’s articles of association will already contain appropriate pre emption rights, in which case strictly speaking they do not need to be included in the shareholders’ agreement as well.

In general, a company’s operations will be run by its directors, and its majority shareholder (or shareholders) will decide who the directors will be from time to time.

As you are one of four directors, and a minority shareholder, you can be outvoted by the other directors on operational matters, or even removed as a director altogether by the other shareholders.

A shareholders’ agreement could give you a specific right to remain a director for as long you have shares in the company, and set out a list of decisions relating to the company’s operations which could only be taken with your consent. These could include such matters as, taking on new employees or dismissing existing ones, increasing its debt, incurring expenditure over certain agreed levels, altering the signing rights over its bank accounts, and so on.

If they are not already contained in the company’s articles of association, also consider whether the agreement should include appropriate pre emption rights (ie giving shareholders first refusal over sales of shares). Ideally pre emption rights should also be included in the company’s articles of association to give the shareholders maximum protection.

Obviously all the shareholders will need to agree to enter in the shareholders’ agreement. As such, its terms will probably be the subject of some negotiation.

Please note that a shareholders’ agreement is a technical document which should be tailored to suit your specific needs. There may be a number of other issues which it should also address which we have not had time to touch upon above. We would strongly recommend that you take specialist legal advice on it.