Why shareholders need a formal agreement

Whilst it is now a legal requirement to have a formal agreement between shareholders or partners, but it is a smart decision to set one up. As a company or partnership if you have more than one shareholder/partner you should definitely have an agreement in place.

What your shareholders will love

What any smart investor wants from the outset, is a clear, concise picture of the business. The agreement can set out the rules around what decisions shareholders can be involved and to what extent. A good agreement should clearly outline the boundaries and lessen potential conflict, while also empowering the shareholder and giving voice to their investment.

Expectations of both parties

An agreement sets the expectations for important decisions, gives clear insight into who is responsible and if a unanimous or majority decision should take place. This gives greater protection to shareholders and can also restrict the directors’ power.

The key terms in a shareholders agreement may include: limits on commercial activities, roles and responsibilities of directors, management structure, confidentiality, rights relating to sale of shares, deadlock and a dispute resolution procedure, keyman insurance, what happens in the event of the death or incapacity of a shareholder/director, dealing with a rogue director/shareholder, reporting requirements and other terms of benefit. The agreement should be tailored to your particular business.

Safeguarding your investment

The purpose of a shareholders agreement is to safeguard the shareholders’ financial interests and future of the business as a whole. A shareholders agreement can deal with what would happen in the case of the untimely death of a shareholder or if the shareholders is also a key employee and is unable to continue to work, as well as placing restraints on directors/shareholders from competing with the business.

The agreement remains confidential and is not available to the public, employees or creditors.

Talk to us at Scott Legal today, we can create a uniquely tailored agreement to fit your business’s needs, and ensure your business and shareholders are protected and covered through a shareholders agreement.

To learn more about shareholder’s agreements, download the information sheet and contact us at Scott Legal today, we can create a uniquely tailored agreement to fit your company’s needs, and ensure your business and shareholders are protected and covered through a shareholder’s agreement.

Leave a comment

Make an enquiry

Send us a message and we’ll contact you to discuss your options.