A shareholders’ agreement is a private document which governs the relationship between the company and its shareholders. It protects shareholders’ interests and covers matters from which shareholders may not be protected under general company law, such as:
- Specific rights relating to minority shareholders’ interests
- The transfer of shares from existing shareholders, allowing for pre-emption rights so that any shareholder leaving the company must offer his or her shares to the remaining shareholders and preventing that shareholder from selling to a third party
- Mechanisms for valuing shares of a shareholder wishing to leave the company so that there is no argument at a later stage as to the value of the shares
- Mandatory transfer provisions that deal with matters such as what will happen to a shareholders’ shares if they die, become mentally incapacitated or commit a serial breach in the company.
The list is not exhaustive but provides the type of considerations that ought to be given when setting up a company. However, it is worth noting that a shareholders’ agreement can be drawn up at any time during the lifetime of a company. The only time that it may be too late to enter into one is when an issue arises that is not capable of being resolved which could have been resolved had a shareholders’ agreement been entered into in the first place.
Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.