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Do I Need a Shareholders Agreement?

February 15, 2019 by Perveen Maan

What is a shareholders agreement?

It is a legal contract entered into by the shareholders of a company which governs their business relationship. Every agreement is different but they commonly deal with matters such as the sale, transfer or issuing of shares, how dividends will be issued, appointment and removal of directors and disputes between shareholders.

Why should you have one?

  1. Dispute “insurance”

A shareholders agreement is akin to an insurance policy. Yes, at this point in time you may get along with your business partner(s), but if for some reason the relationship sours down the line, a good shareholders agreement will set out how to resolve the dispute at minimal cost to the parties.

Disputes arise in business more often than expected. Business owners are often reluctant to invest in shareholders agreements due to the cost. However, the initial cost of the agreement is small compared to the cost of a potential dispute which could include not only lawyer’s fees but also the cost to the business in having its shareholders disputing and not focusing on business!

  1. Personalised

A good shareholders agreement will reflect how you and your business partners want to run the business and will be customised to your needs. This cannot be changed by anyone except the parties to the agreement in writing.

  1. Clarity
    It is easy to get caught up in the whirlwind and excitement of starting a new business. A shareholders agreement provides clarity at the outset as to the rights and responsibilities of each shareholder in the business. This provides a reference point for the parties and also ensures that each party can be held accountable.
  2. Perception
    A shareholders agreement shows third parties that the business is organised and that there are solid processes in place. This is particularly useful when applying for finance or seeking investment from other companies.

This is general advice only. Liability limited by a scheme approved under Professional Standards Legislation.

 

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