The shareholders’ agreement is one the most important aspect that one should consider when establishing a new business enterprise that involves more than one individual who contributes financially or otherwise. Basically, a shareholders’ agreement provides the exact ownership stake each business partner will enjoy, along with incumbent duties and obligations. Moreover, non-company contents, like management rights, licensing intellectual property, etc. are commonly stipulated in the shareholder’s agreement.
Although a shareholders’ agreement is not mandated by law, it offers many advantages that shareholders can’t simply afford to ignore.
- It can be used to defend the position of minority shareholders by requiring unanimous approval for important company decisions.
- It can control the appointment and removal of directors by allowing a shareholder or a group of shareholders each to appoint one or more directors.
- It can regulate the raising of capital to avoid the dilution of shareholdings.
- It can place restrictions on changes to the nature of the company’s business.
- It can provide for the resolution of disputes where a deadlock occurs, through mediation and/or arbitration.
- It can be tailored to suit the company’s needs. It may set out how the company is structured, the day-to-day operations of the company, how many directors there will be, and the remuneration for the directors.
There are particular provisions that you should look out for when entering a shareholders’ agreement. To know these, here are the key takeaways from the infographic below which details the fundamentals you need to know about shareholders’ agreement.
- The business of the company and its management.
- Limitations and restrictions on management.
- Rights and obligations of shareholders.
- Distribution policy.
- Covenant regarding the sale of shares in the company.
- Covenants regarding the restriction from competing with the company.
- Valuation of shares.
- Dispute resolution.
Check out the infographic below from Amorys Solicitors to learn more.