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Having a 'shareholders agreement' is a bit like having insurance. You hope that you'll never need to use it, but its there, just in case you do. Putting one in place will ensure that you're going into business with confidence and protection.
The good news? You don't need to spend lots of your hard-earned cash drafting up a Shareholder Agreement. Read on to find out how to write one for your company now.
A shareholders agreement is a written legal document designed to protect every investor's financial stake in the corporation. It's used to define the relationship between a company's shareholders as a means of safeguarding all parties. The agreement should lay down the rules between parties and help regulate the relationship in the future.
This type of agreement usually lists:
You should use a shareholders agreement any time you embark upon a business arrangement with other investors or share-owning parties. Technically, a shareholders agreement can be put in place at any time, but it's always better to do it as soon as a company has more than one shareholder.
You may also need to consider writing a new shareholders agreement if there's a considerable change in the company's shareholders or structure. For example, if a shareholder wants to sell his shares or if the company changes its business model.
A shareholders agreement can vary considerably depending on the company and the shareholders involved. There are some key items that should be covered in the agreement, which include:
Shareholders agreements and partnership agreements both set out the business relationship between the involved parties. The main difference between the two lies in their name. While a shareholders agreement is an agreement between the shareholders of a company, a partnership agreement refers to an agreement between partners in a partnership.
To understand this better, it's important to know the difference between a partnership and a company. Partners in a partnership come together to pursue a common business goal. All partners will be involved in the day-to-day running of the business and share in the profit or loss.
Shareholders, on the other hand, own shares in the company and can exercise influence over the company through rights to vote at shareholder meetings. Generally speaking, shareholders aren't involved in the day-to-day running of the company and liability for losses is limited.
Despite not being a legal requirement, a shareholders agreement is a hugely effective tool in regulating business between shareholders and managing any future disagreements. Without a shareholders agreement, disputes that arise have to be settled according to the Articles of Association.
The implications of getting something wrong in a shareholders agreement can be severe, which is why it's always a good idea that a legal professional looks over or even drafts the document for you.
Writing a shareholders agreement takes time. Clauses should be carefully considered to include everything that is relevant to the company and shareholders. Here's a simple how-to for when you start writing one:
The first section of your shareholders agreement should name all of the parties involved in the agreement along with a general description of the company structure and procedural rules. For example:
The rights and responsibilities of each shareholder, as well as the company, should be clearly outlined. This can include things such as:
There should be a clear process outlined in the issuing and transferring of shares. It should include situations where shares can be sold and if the company can repurchase shares at any time. Tag-along rights concerning minority shareholders and drag-along rights should also be discussed here.
With such a complicated and important document like this one, there's every chance that you'll need a helping hand when it comes to writing it. A shareholders agreement template is a great place to start. Here's where to find some online, right now!
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