A Shareholders' Agreement is a private, legally binding contract among a company’s shareholders, designed to regulate management, protect interests, and govern share transfers beyond the scope of the company constitution.
In the event of future disputes among shareholders, reference will be made to the providing of this Agreement.
Purpose
The purpose of having a shareholder’s agreement is:
a)It provides a formula to deal with any disputes among shareholders.
b)It protects minority shareholders.
c)It sets out how shares are sold, transferred, or purchased. This can enable existing shareholders to decide who can buy shares in the company.
d)Voting rights can be set out.
e)Matters dealing with the management of the company can be included.
f)Selling shares: rules can be provided for
g)Confidentiality.
h)Composition of Board members.
In start-up companies where there will likely be many shareholders coming in at different stages, a shareholder’s agreement is very important.
The Risk of Not Having a Shareholders’ Agreement
A dispute among shareholders can be disruptive to the operation of a business. Where is cannot be resolved internally. Reference can be made to the governing law, The Companies Act, 2014 but that invariable will involve the waring side to bring in solicitors, and it could end up in court, leaving for a judge to decide. That can involve great expense and a huge distraction to the running of the business.
Minority shareholders might have little say in the running of the business and might feel isolated.
It can be the case that some family run businesses do not see the need for this but as seen from some high-profile business families, when things go wrong, they can go horribly wrong without a shareholders agreement.
Timing
Ideally when a company is formed, a shareholders agreement should be put in place.
When forming a company, a shareholder’s agreement is wise to include. Your solicitor will guide you on this.

