You are not legally required to have a shareholder’s agreement, but the chances of you encountering problems and disputes are very high if you don’t have one in place.
Why do I need a shareholders agreement?
A shareholder’s agreement is a binding contract that is negotiated by the shareholders of a company which controls their relationship and business arrangements. A shareholders agreement will clearly set out the shareholders rights, responsibilities, obligations, liabilities and protects their interests.
Having a shareholders agreement in place is a good idea to ensure that your company runs efficiently with minimal conflict between shareholders.
What should a shareholders agreement include?
A shareholders agreement should be signed by the company and each shareholder. If there are new shareholders, the new party will need to enter into a ‘Deed of Accession’ which makes them bound to the shareholders agreement. If a shareholders agreement is breached by a shareholder, a cause of action may be brought against them.
A shareholders agreement will usually include;
- Rights and obligations
- Management and operation of the company
- Appointment of directors
- Voting rights and issue of new shares
- Available options if another shareholder leaves or joins the company
- Restriction of competition within the company
What could go wrong if I don’t have a shareholders agreement?
If a conflict arises between shareholders and there isn’t a shareholders agreement in place, the other shareholder/s can be put in a difficult situation. For example, if one shareholder does not fulfil their duties and obligations, the other shareholder can be left with significant expenses when trying to fix the issues, especially in situations where the other shareholder leaves. Usually a shareholders agreement will also set out how disputes are to be handled, therefore if there is no agreement, disputes can become very messy as there is no procedure to follow.