Shareholders Agreements – What are they and why are they important?
A Shareholders Agreement is a written agreement between the shareholders of a company. It sets out the relationships between the shareholders and provides clarity and a deeper understanding of the business relationship for all parties.
When you enter a business arrangement with another person, there are many matters that you should consider – how will this end? What happens when I pass away? What if we disagree on an essential business matter? How will my shares be valued if/when I exit the company?
In the absence of a well-considered Shareholders Agreement, shareholders may lack the resources necessary to resolve issues and thus impact the success of their company. Therefore, it is highly important for shareholders to engage in planning not only for their current circumstances, but also adapting to the future.
There are many matters that impact the structure that a Shareholders Agreement should take, and it is important that you seek legal advice to ensure that the structure you use is appropriate. Unfortunately, the “one size fits all” approach is not advisable for establishing and regulating a shareholding relationship.
Generally, a Shareholders Agreement should address the following:
Shareholder and director voting arrangements – i.e. simple and special majority vs unanimous resolution;
What are the minimum commitments required of each shareholder?
Future planning for unavoidable circumstances – for example, the death of a “key person” in the business; and
What insurances are required to ensure the business can continue if one shareholder (or its “key person”) dies.
There are many other matters that require in-depth and comprehensive consideration.
If you require assistance preparing a Shareholders Agreement or seeking advice on an existing Shareholder Agreement, please contact Jenkins Legal Services for further information.