5 things you need to know about a Shareholders' Agreement:
1. What is a Shareholders'
Agreement? A Shareholders' Agreement is a contract entered into among the
company's shareholders which, together with the company's articles of
association, creates the internal "rules" by which a company is
governed.
2. What areas does a Shareholders'
Agreement cover? A Shareholders' Agreement can deal with all aspects of the
relationship among the shareholders, including the rights and obligations of
the parties.
3. Specifically...? Protection of
minority interests, control of decision-making at board and shareholder level,
non-compete provisions, resolution of shareholder disputes, as well as defining
the powers of the shareholders (and directors), and the procedures and limits
within which the company operates.
4. Anything else? A Shareholders'
Agreement can also regulate share transfers - for example, if a shareholder
leaves the company it is possible to have provisions in place to force such a
shareholder to sell their shares back to the other shareholders.
5. What happens to shares if a
shareholder dies? Without a Shareholders' Agreement in place, the shareholder's
beneficiaries may (or may not!) be able to take over the shares. A
Shareholders' Agreement can provide certainty for all concerned - including
allowing the surviving shareholders the right to purchase the deceased's shares
before they are transferred to beneficiaries.
