This article was submitted by Peter Lynn and Partners
Shareholder agreements are not a legal requirement and a company can happily trade for years without one.
That is until there is a change in the business or an argument within the company at which point a shareholder agreement could become the most important document you have!
- One of the shareholders dies or wishes to leave the company?
- One party wants to sell the business or certain assets but the other does not?
- You have different ideas when appointing Directors?
- One shareholder leaves and decides to set up in competition?
Having a shareholder agreement offers security and clarity at the very time you need it, yet so many businesses are leaving themselves exposed by not having one in place.
So, what is a shareholder agreement and what does it do?
A shareholder agreement:
- Sets out the rights and obligations of each shareholder to each other;
- Regulates any transfer of shares through sale, death or other means;
- Sets out rules of how the company is going to run;
- Offers protection to shareholders who are in the minority; and
- Governs how important decisions are to be made.