Shareholder agreements are legal documents that protect your business interests. If you go into a partnership, you need to formalise it with a legally binding document. Provisions need to be in place to protect the company’s shareholder assets and management, as well as directorial control and rights. If you’re a shareholder of a company, you have controlling rights, you have decision making rights.
The board of directors doesn’t hold the shareholders agreement, like a bible to be consulted at every decision making moment. Directors are generally in synch and come to a diplomatic agreement, when making decisions. However, it is possible for one or several of the shareholders to disagree and not back down. In this instant, they can fall back on the “default position” stipulated in the agreement. What they originally agreed on, will be recorded in the shareholders agreement.
Whilst the running of a company is in the hands of the board of directors, shareholders have certain voting rights. It all depends on what’s been agreed at the start of the business venture. One thing that can be misunderstood is that not all directors and shareholders have voting rights. However, someone can be given the right to vote, if the board of directors and shareholders are all in agreement.
What guarantees do you have that you can foresee any scenario, which could impact on your voting rights? Decisions can be made democratically with shareholders and directors exercising their voting rights. Equally, those without voting rights could be invited to vote on a decision. Even if officially, they have no voting rights. But when a problem arises, a shareholder could loose voting rights. If voting rights are unlawfully taken away, the shareholders agreement will settle the disputed.
If you need to discuss any part of a shareholders agreement and perhaps make amendments, please contact us for an initial informal discussion with one of our business law experts. SG
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