A shareholders agreement regulates the way a company is run. It regulates the way directors conduct themselves and helps shareholders understand their rights and options available. If the owners of a company have a dispute, the shareholders agreement might settle the disagreement before it escalates.
The running of a business is the responsibility of the board of directors. But not all decisions need to be left in the hands of the directors. Some decisions can be made with the shareholders input or/and vote. Without a legal agreement, imagine what kind of pressures and even dangers the company would face. This could impact negatively on the business.
If a company has a number of directors who’ve invested in the business, they can collect dividends. If they are owners of the business, they have to get that fact in writing. The document will have to stipulate exactly what percentage of the profit is due to each shareholder. In turn, a shareholder will have the right to either sell or transfer shares.
After making decisions about who can buy or sell shares, there needs to be clarity on what is acceptable, when selling or transferring shares. For instance, the directors may decide that they will extend the company’s profitability to the employees. In other words, employees can buy, sell and transfer shares. The shareholder agreement will dictate the conditions an employee needs to meet in order to be eligible to buy shares.
Suppose one of the directors wants to exit the business. The shareholders agreement will stipulate rules and restrictions, so the one exiting doesn’t impact negatively on the business. The agreement will bring protection and stability to the business. If you are thinking of drafting a shareholders agreement, please give us a call and we’ll offer an initial consultation with no obligation. SG
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