Shareholder Agreements

What is a Shareholders Agreement?

A shareholder agreement governs the relationship between a company, its directors and shareholders. 

The agreement sets out the obligations and rights of shareholders whilst they hold shares in the company, and will often deal with obligations of parties once they cease to be shareholders.  Shareholder agreements can be very complex and must be carefully drafted to address the requirements of each individual company.

Do I really need a shareholders agreement?

Although not mandatory, a shareholder agreement is an important document for managing the relationship between shareholders and a company.  It operates in addition to the company’s constitution, and provides the flexibility to deal with issues that the constitution does not address.

Shareholder agreements can therefore be an important tool in ensuring the effective management of a company and the company’s business.

Where disputes arise, an appropriately drafted Shareholders Agreement which is tailored to your individual company, can provide clarity to each shareholder in relation to their rights and obligations and can set out appropriate procedures for resolving disputes.

What issues are covered in a Shareholder Agreement?

A shareholder agreement will generally address the following matters:

1. obligations of the shareholders to each other and to the company;
2. any right of a shareholder to appoint a director to the board of directors;
3. the voting rights of shareholders and the directors appointed by the shareholders;
4. the process for calling and conducting, and voting at, meetings of shareholders;
5. the process for calling and conducting, and voting at, board meetings;
6. the process for transferring shares in the company, including any events that may trigger an obligation to transfer shares (for example, insolvency of a shareholder or default by a shareholder);
7. whether any restraints of trade will apply to the shareholders and their affiliates, and the duration and parameters of such restraints;
8. the process for providing shareholder loans;
9. the consequences of death or permanent disability occurring to a shareholder;
10. the procedure for determining whether a dividend should be paid; and
11. the types of decisions by the board or the company which require unanimous or special resolutions of the directors or the shareholders (as applicable).

The breadth of issues that can be addressed in a shareholder agreement allows parties the flexibility to cover a variety of circumstances.   However, it can also give rise to complex matters to be considered by the parties.  It is therefore essential that you seek legal advice in preparing a shareholders agreement that is tailored to your specific circumstances.

How can Coulter Legal help?

The experienced team at Coulter Legal has advised clients on detailed shareholder agreements for large companies with complex shareholder arrangements, and on arrangements between shareholders of small to medium companies.  We will guide shareholders through the particular requirements of a shareholder agreement, and draft a shareholder agreement that will provide clarity to both the company and its shareholders.

There are many different structures that can be used for a business and if a shareholders agreement is not the right structure for your business, we will be able to advise you or you seek further information on alternative structures here.