A Shareholders' Agreement regulates relations between shareholders of a company and how the business and affairs of a company are run.
A Shareholders' Agreement, as you might expect, is an agreement between the shareholders of a company. A well-drafted agreement will:
Going into business with others can be risky, whether they are family, close friends, or a new business partner. A Shareholders' Agreement is intended to combat this risk by making sure that all shareholders are treated fairly and that their rights are protected. It is an important tool to balance the rights of the different shareholders.
Using a Shareholders' Agreement to set out the rules also gives more flexibility than relying solely on the company's Constitution. Being too prescriptive in your Constitution can limit how your company develops. As the business grows and you get new investors or explore other business areas, a Shareholders' Agreement can be quickly and inexpensively updated.
As the business grows and you get new investors or explore other business areas, a Shareholders' Agreement can be updated.
One of the most useful points of the Shareholders' Agreement is what happens if a shareholder wants to exit the company. This can be a stressful time for a business, so to agree from the start how this is dealt with can relieve pressure at the time.
When drafting a Shareholders' Agreement, it is important to focus on a number of key clauses, in particular: