What Is A Shareholders Agreement?

Shareholders Agreement is an important contract between the shareholders of a company. It sets out how decisions are made, what happens when a shareholder wants to leave the company, how disputes are handled and other important matters. Even if you’re in business with friends or family, having ground rules is always healthy for the relationship and the business, especially as your business grows and the stakes become higher.

When Do I Need It?

If you’re setting up a company with more than one shareholder you need a Shareholders Agreement.

How Do I Use It?

Each of the shareholders will sign the Shareholders Agreement. This then becomes a legally binding record of the terms set out in the agreement. You should refer to it whenever a relevant consideration comes up in the course of business e.g. when making decisions in the company, or resolving a dispute.

Shareholders Agreement Example

Peter and Grace want to start a cafe together. They register a company where they are each 50% shareholders. They get a lawyer to draft a Shareholders Agreement setting out the details of their business relationship. After 6 months, Peter decides to leave the business because he gets an opportunity to work overseas. Grace wants to take full ownership of the company when Peter leaves. However, Peter has a friend, Maddie, who wants to buy Peter’s half of the company. Peter and Grace refer to the Shareholders Agreement, which says that if one shareholder wants to leave, they must offer to sell their shares to the other shareholder before offering to sell them to someone else. As a result, Grace is able to buy Peter’s half of the company as they originally agreed and Maddie will unfortunately miss out on this opportunity.

What’s In A Shareholder Agreement?

A Shareholders Agreement addresses a variety of issues relevant to the particular company. It is a good idea to get a lawyer to provide you with a list of issues to consider and advise you on what’s normal if you’re unsure. You can also tell the lawyer any specific requirements related to your business and they can advise on the best way to incorporate these into the agreement.

Some key things to think about are:

  • How many shareholders will there be?
  • What proportion of shares is owned by each of the shareholders?
  • What is the relationship between the directors and the shareholders?
  • How will disputes be dealt with?
  • What happens if a shareholder wants to leave?

Need Help With A Shareholders Agreement?

Putting together a Shareholders Agreement can seem like a daunting process, as it’s hard to know what to include and how to word it. It’s a good idea to invest in a lawyer to assist you with this process, as it’s a one-off cost that can save you from disputes and liability in the long run.

At Sprintlaw, we have a team of experienced lawyers can assist you with drafting or reviewing your Shareholders Agreement. Get in contact with one of our consultants for a no-obligation chat on how we can help you put together your shareholders agreement and help with any other legal issues your business may have.

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