What is a Shareholder Agreement?
A Shareholder Agreement is a legal contract which is entered into between a company and its shareholders. The contract details the rights and obligations of the shareholders and makes sure everyone understands what is expected of them.
Why do I need a Shareholder Agreement?
Setting up a new business can be expensive and so it is understandable that many new business owners delay putting together a Shareholder Agreement, instead waiting until they have more time and money available.
It's important to remember that it will be much quicker, cheaper and easier to put together an Agreement early on rather than waiting for a problem to arise which could be costly and time consuming to resolve in the future.
What information is contained in a Shareholder Agreement?
The exact content of the Shareholder Agreement will depend on the individual circumstances of your business but some of the main issues that may be covered include:
• Financing of the company
- What will the shareholders contribute
- Share capital or loan
- Details about how finance may be raised in the future
• Management of the company
- How will Directors be appointed
- Which bank will be appointed
- Which accountant will be appointed
- Will profits be shared or retained for growing the business
- How will profits be shared and how often
• Transfer of shares
- Do members want to control who shares are transferred to?
- How will a price be agreed?
- In some circumstances shareholders may disagree and there needs to be something in writing which details how this situation will be dealt with i.e. veto, mediation, transfer of shares.
• Exit Provisions
- How do shareholders leave the company?
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