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 and keeps those rules private between the shareholders, whereas a constitution must be filed with the Companies Office and is therefore publicly available. However, establishing a constitution may also be required if shareholders wish to depart from certain default rules in the Companies Act 1993.
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: