A shareholder agreement describes a set of regulations that are entered into by all or some of the shareholders of a company. It acts as a way to regulate the relationship between shareholders, the way in which the company is run, the ownership of the shares and the protection of the shareholders.
The agreement is typically used as a safeguard that protects shareholders if anything was to go wrong within the business. It can provide options for several circumstances that could occur to do with the finances of the company, management of the company, deadlock situations, correct procedure to be followed on a transfer of shares and valuation of the shares.
If you’re wondering “what are shareholder agreements?” and why they are important, here is some more information.
What Does a Shareholder Agreement Include?
The agreement will set out:
- Shareholders’ rights and obligations
- Outline how the company is going to be run
- Manage the sale of shares in the company
- Act as a protection for minority shareholders and the company as a whole
- Determine how important decisions should be made
Why Do You Need Shareholders’ Agreements?
A shareholder agreement should always be put into place when there is more than one shareholder in a company. Even if a company is comprised of only family or friends, it’s important to have a shareholder agreement in place so any unforeseen events can be remedied.
Without a shareholder agreement, any disputes between shareholders or directors would have to be settled by the articles of association. The articles of association refer to one of the two constitutional documents that set out rules on how the company is run. By themselves, the articles of association aim to prevent any events occurring in the first place. However, the shareholders’ agreement provides a contractual resolution if any terms are broken.
How Will a Shareholder Agreement Benefit a Minority Shareholder?
A minority shareholder will generally have little control over business decisions without a shareholder agreement. Instead, one or two of the shareholders will have the say over running the company. It’s important for minority shareholders to have a shareholder agreement that requires all shareholders to approve certain company decisions if they want to have a say in big decisions.
How Will a Shareholder Agreement Benefit a Majority Shareholder?
A shareholder agreement can be helpful for a majority shareholder to prevent minority shareholders from disclosing any confidential company information to competitors or from creating another competing business. Including a term that covers this is advised as a provision.
Majority shareholders may also be concerned if a minority shareholder chooses to transfer their shares to another individual. This could be a potential issue for all shareholders, especially if the transfer comprises a competitor or someone the shareholders do not feel comfortable being involved with the company.
Now you have the answer to your question, “what are shareholder agreements?” Premier Legal are here to help support your business. If you’re an employer looking for HR support, a legal support retainer, or legal insurance we’re here to help you avoid costly legal fees and offer you peace of mind. We also provide work with commercial law experts, Hawkins Hatton Solicitors to provide bespoke shareholder agreements. If you’re interested in finding out more about how we can support you as an employer, contact our expert team today.
