Shareholders’ Agreements

When you own and run a company with other shareholders, it is important to have a clear agreement setting out everyone’s rights, responsibilities and expectations. A well-drafted shareholders’ agreement provides certainty, protects individual shareholders and helps establish how the company will be managed.

When relationships are positive, a formal agreement may not seem essential. However, disagreements can arise over the direction of the company, financial decisions, individual contributions or plans for the future. Without an agreed framework, resolving these issues can become difficult, disruptive and expensive.

A shareholders’ agreement cannot prevent every disagreement, but it can reduce uncertainty and provide practical procedures for managing difficult situations. It should complement the company’s articles of association and reflect the shareholders’ particular priorities.

Depending on the company, the agreement may cover:

• how important business decisions will be made;
• the roles and responsibilities of the shareholders;
• the appointment and removal of directors;
• funding requirements and the payment of dividends;
• restrictions on issuing or transferring shares;
• what happens if a shareholder wants to leave;arrangements following death, incapacity or prolonged absence;
• protections for majority and minority shareholders;
• procedures for resolving deadlock and disputes; and
• confidentiality and restrictions on competing with the company.

Putting these matters in writing at an early stage helps shareholders understand where they stand and provides a stronger foundation for the company’s future.