SHAREHOLDERS’ AGREEMENTS – WHY DO YOU NEED ONE?
Whether you are a small company with two, or a larger business with multiple shareholders, it is impossible to overstate the importance of having a properly drafted shareholders’ agreement explains Peter Raybould, company commercial lawyer at solicitors Willans LLP.
The agreement helps manage the relationship between directors and shareholders within a business, providing clarity and certainty and enabling directors to focus on the running of the business whilst also providing protections for shareholders.
It is very important that a shareholders agreement is a bespoke document, drafted to address the specific needs of a particular group of shareholders. For example, the agreement can be used to:
• control the decision making capabilities of the board of directors
• set the dividend policy of the company
• put in place procedures which the company must follow for share transfers or on a sale of the company
• protect minority shareholders’ interests by placing restrictions on dominant shareholders
• determine what happens to a shareholder’s shares if he becomes bankrupt or if his employment with the company is terminated
• set out what happens if a shareholder dies, by implementing cross options, deemed transfer notices or permitting transfers to family members
• place restraint of trade provisions on shareholders, restricting their ability to compete against the company.
Failure to put a shareholders agreement in place means that there is greater uncertainty in the event of a dispute or if an unexpected event occurs.
If disputes between shareholders do arise, it will be much harder to find a speedy and cost-effective resolution as it will be dependent on the parties involved being willing to compromise and agree a settlement.
We must stress that a shareholders agreement does not guarantee that disputes between shareholders will be avoided. It does however, provide shareholders with a security blanket, giving them assurance that if ever a problem arises they have a point of reference which is likely to protect their interests.
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