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Shareholders Agreement – Why Do I Need One?

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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!

What if:

  • 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.