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The Importance of a Shareholder agreement

Posted on Wednesday, 29th May 2013 by

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Shareholder’s agreements are essential in any company. They set out the rights of different shareholders to protect interests and investments in the company. Having shareholders agreements helps to avoid disagreements and quickly resolves issues that may arise between each shareholder.

A small number of issues that may want to be covered in shareholders agreements include:

  • The rights to appoint or remove directors.
  • A business plan – this helps to ensure that everybody has the same vision for the company and a clear, set out plan. There may be tax implications involved along with this also.
  • A Dispute resolution plan
  • Terms so that all shareholders are equally protected. For example, for certain company decisions, all shareholders must give their approval before action is taken.
  • How are shares treated worth-wise?
  • What happens about changing the business completely?
  • Directors freedom limitations
  • Rights of veto
  • Borrowing rights

So who needs a shareholders agreement? It is generally assumed that directors of a company take responsibility for the running of the business and they make most of the high end decisions. Shareholders have a small but important number of rights to get involved in a company. It is also generally thought of through company law that shareholders with a majority of voting rights prevail above others. This can be varied through Quasi- partnerships (an equal say in how the company is run, development of the company, equal shares in profit etc.) which generally provide equality, joint ventures – two businesses coming together to continue a joint venture, again normally equal rights throughout when arranged, or investors with minority stakes. Some shareholders in quasi-partnerships often don’t have a shareholders agreement. They rely on closeness of relationships between each other. But if or when things turn sour, not having a clear route of what happens next can cause major issues and disruption for a company.

It isn’t too costly or time consuming at all to draw up a shareholder agreement, and they tend to turn out to be very useful and necessary investments; a valuable reassurance for the future.

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The information provided in all of our blogs reflects only a narrative of some elements to consider on the topic. The blogs do not contain considered legal advice and should not be relied upon as advice. Please see our website terms and conditions for full details of our disclaimer. If you are interested in obtaining advice, please contact one of our lawyers who will be happy and able to advise you on your own particular circumstances.

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