A Shareholder Agreement is one of the most fundamental agreements in a founders arsenal. With many Shareholder Agreement Templates available to founders, it can be hard to know what you should be looking for in a Shareholder Agreement. However, Shareholder Agreement Templates should be avoided at all cost. Let’s go over what a Shareholder Agreement is and why Shareholder Agreement Templates should be avoided.
- What is a Shareholder Agreement? A Shareholder Agreement is an agreement between all or some of the shareholders in a company.
- What is the purpose of a Shareholder Agreement? The Shareholder Agreement regulates the relationship between the shareholders, the management of the company, ownership of the shares and the protection of shareholders.
- Why are Shareholder Agreements used? Shareholder Agreements are often used to safeguard and give protection to the shareholders. A large amount of Shareholder Agreements are designed to protect the minority shareholders (e.g. anyone with less than 50% equity) and those with equal shareholdings (e.g. 2 shareholders with 50% each).
- When should a Shareholder Agreement be made or signed? A Shareholder Agreement should be prepared by time the first share has been issued. As for being signed, the agreement should be signed before any of the shares are transferred. If not, this might lead to many problems in the future.
- What can be found inside a Shareholder Agreement? A Shareholder Agreement will usually contain the following:
– Set out the shareholders’ rights and obligations.
– Regulate the sale of shares.
– Describe how the company is going to be run.
– Provide an element of protection for the minority shareholders and the company.
– Define how important decisions are to be made.
- What should you want included in a Shareholder Agreement?
– Issuing shares and transferring shares – include provisions to prevent unwanted third parties from buying shares.
– Provisions for how a shareholder can sell shares.
– Providing some protection to holders of less than 50% of the shares – include certain decisions to be agreed by all shareholders.
– Running the company – include appointing, removing and paying directors, deciding on the company’s business, making large capital outlays, providing management information to shareholders, banking arrangements and financing the company.
– Paying dividends.
– Competition restrictions.
– Dispute resolution procedures.
- Why should Shareholder Agreement Templates & free templates be avoided? The main reason Shareholder Agreement Templates should be avoided is because they are far too general. When dealing with your business you want it to be specific to your company and your needs. This is double when it comes to your legal work. Legal work cannot and should not be generalised.
The other reason that Shareholder Agreement Templates are to be avoided is that they can be full of mistakes. Many of these templates are written by people that are not lawyers. Hence, they have no knowledge of the law and how to properly draft legal documents.
Final Words: Shareholder Agreement
The importance of Shareholder Agreements can not be understated as made clear in this article by Kathryn Bayer. It is such a fundamental agreement that without it, a company can find itself closing due to disputes and issues. To make sure that your Shareholder Agreement is as impenetrable as it can be, be sure to avoid Shareholder Agreement Templates. When it comes to any legal work, it should be personalised to fit your business and your needs.
You can get a personalised Shareholder Agreement within a matter of days by clicking the image below.