All you need to know about Shareholders' Agreement.
WHAT IS A SHAREHOLDERS' AGREEMENT?
A Shareholders' Agreement ('SHA') is an agreement between the shareholders of a company which governs the relationship of the shareholders and the framework of how the company will be run.
WHY DOES YOUR BUSINESS REQUIRE A SHA?
- Clarity and certainty. Ensures that all shareholders are aware of their rights and responsibilities.
- Shareholders' protection. Safeguards the rights of different interest groups e.g. 'drag-along' rights for majority shareholders and 'tag-along' rights for minority shareholders.
- Avoid Deadlocks. Provides mechanisms to deal with deadlock situations e.g. where a unanimous decision cannot be reached.
- Dispute Management. Parties save time and cost by setting out pre-agreed method of dispute resolution in the SHA.
COMMON CLAUSES
- Share Transfer Process
- Appointment and Removal of Directors
- Payment of Dividends
- Drag-Along & Tag-Along Rights
- Deadlocks
WHEN SHOULD YOUR BUSINESS HAVE A SHA?
Although SHAs are not mandatory, it is prudent to have one in place at the get-go of forming a company with multiple shareholders.
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Originally published 04 August 2022
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.