Shareholders’ Agreements: the “pre-nup” of companies…. Reaching agreement before the sh*t hits the fan
On starting a company with more than one shareholder, shareholders are often advised to make a Shareholders’ Agreement.
While a Shareholders’ Agreement is by no means a legal requirement, shareholders are well advised to record their agreement at the outset of business operations in order to regulate the way business between them is conducted.
A Shareholders’ Agreement is usually formed at the beginning of a new business venture. A Shareholders’ Agreement is a binding contractual arrangement between shareholders and governs their relationship with one another, their business relationships and arrangements. It also sets out the shareholders’:
Quite often shareholders will ask whether a Shareholders’ Agreement is actually needed particularly when the business is young, relationships are good, and finances may be tight.
So, why should shareholders seriously consider entering a Shareholders’ Agreement?
While Shareholders’ Agreements should always reflect the unique needs of the particular company, its business operations and the shareholders, there are a range of provisions which are generally included:
Having a Shareholders’ Agreement in place at the outset can prevent disputes and will facilitate the smooth operation of companies. No matter how well shareholders know each other, conflict is common, with disputes often arising when a shareholder wants to sell their shares, if the company is not performing as well as hoped or if the shareholders want the company to go in different directions.
The initial cost in setting-up a Shareholders’ Agreement is nothing compared to the costs of disputes and you should therefore view the cost of preparing a Shareholders’ Agreement as an investment. An investment in the smooth-running and stability of your company.
Cross the T can assist you in preparing a Shareholders’ Agreement which is tailored to your needs. All parties will need to be in consultation and negotiation throughout the process, and we can guide you and provide the best advice on the risks, those provisions that are required to respond to your company’s particular needs and the best way to secure each party’s rights in the agreement.