A shareholder’s agreement is a useful document to have especially when there are a number of shareholders.
The main purpose of it is to regulate the relationship between shareholders, the company, and potentially the company's management, ensuring that all parties are aware of their roles and how the company will be governed.
In essence the shareholders’ agreement is a contract and like all contracts it creates rights and obligations for shareholders beyond the basic rights in company law or in a company’s constitution.
The parties to a shareholders’ agreement may be all the company’s shareholders or just some of them. But it is useful to have in place for new shareholders.
Careful consideration needs to be given to its clauses. Your solicitor will guide you through these.
Such agreements deal with the issue and sale/transfer of shares, the composition of the board of directors and appointment of new directors, how it deals with minority shareholders and their rights, restrictive covenants and options to resolve disputes. It is open to the directors creating a shareholder’s agreement to include or exclude clauses they want or do not want.
In addition, a company can have more than one shareholder’s agreement in place at the same time but to avoid conflict one agreement is preferable.
Having in place a shareholder’s agreement is a faster way of resolving disputes among shareholders.
Some common issues that can create shareholder issues:
- How dividends are to be paid & when paid
- In family businesses disputes can easily arise, these can be more personal than to do with the company
- Selling shares
- Amending the company’s constitution
- Appointing new directors
A shareholder’s agreement will cover all the contingencies that can arise in a business. Not all will be relevant to your business so your solicitor will guide you in choosing the clauses best suited to your business.
A shareholder’s agreement can be terminated in a few ways, including by mutual agreement of the shareholders, by a specified event in the agreement, or by the company's dissolution. The agreement should outline the specific circumstances and procedures for termination.