What is a Shareholders’ Agreement? 

A Shareholders’ Agreement is basically a contract between the shareholders of a company.  A Shareholders’ Agreement is not compulsory and is a confidential document between the parties to the Agreement. It could be likened to a pre-nup agreement.

Often a Shareholders’ Agreement is signed on or before the incorporation of a company. However a Shareholders’ Agreement can be entered into at any time.

Why do you need a Shareholders’ Agreement?

The Companies Act 1993 only contains limited provisions which only relate to the relationship between a company and its shareholders.  It does not regulate the relationship between the shareholders themselves.

Like any relationship, the relationship between shareholders goes through its ups and downs.  Just like a pre-nup, a well drafted Shareholders’ Agreement can cover what happens, not only when there is a “divorce” between the shareholders, but in relation to any disputes or when one shareholder wants to exit the company.  It also provides a level of certainty between the shareholders.
Without a Shareholders’ Agreement, trying to resolve a dispute between shareholders on removing a shareholder could be a very costly and lengthy process.  The shareholders may even have to resort to litigation to resolve the matter.

During the process of negotiating a Shareholders’ Agreement the shareholders are forced to discuss and try to resolve what will happen if a certain event arises.  During this process the shareholders will get to know each other very well and it can be a very important part of the shareholders establishing that they can actually work with each other.

What is in a Shareholders’ Agreement?

A Shareholders’ Agreement will usually cover the following matters:

 

Now ask yourself – do you need a Shareholders’ Agreement?

Talk to us today about your Shareholder Agreement queries or for advice on how to move forward.