Shareholders' Agreement
/ˈʃeəˌhəʊldəz əˈɡriːmənt/
A shareholders' agreement is a legal contract between company owners that sets out their rights, responsibilities, and how key decisions will be made.
A shareholders' agreement is a legal contract between company owners that sets out their rights, responsibilities, and how key decisions will be made.
A shareholders' agreement typically covers ownership percentages, voting rights, how profits are distributed, and procedures for major business decisions.
It also includes rules about what happens if someone wants to leave the company or sell their shares.
Think of it as the rulebook that prevents arguments between business partners before they happen.
Start with a Founders Agreement which is like the little sister to the Shareholders Agreement, but when an external investor is coming into the company, it's time for a Shareholders Agreement.
Without one, you're relying on basic company law, which might not suit your specific situation.
Your company's articles of association are public documents filed with the relevant company registry, whilst a shareholders' agreement remains private between the owners.
The shareholders' agreement can be much more detailed and specific to your particular circumstances.
It essentially adds extra rules on top of the standard company framework.
The best time to create a shareholders' agreement is right before you give shares to a new investor.
It's much easier to agree on terms when everyone's excited about the venture rather than waiting until problems arise.
Creating one later often means more complex negotiations and potential disagreements.
Most shareholders' agreements include dispute resolution procedures, such as mediation or specific voting mechanisms for deadlocks.
They often contain "deadlock breaking" clauses that provide solutions when shareholders can't agree on important decisions.
Some agreements even include buy-out procedures for when relationships break down completely.
Yes, but typically all shareholders must agree to any changes, which can be challenging as your business grows and relationships evolve.
That's why it's crucial to think carefully about the terms initially and try to anticipate future scenarios.
Regular reviews are sensible, especially after major milestones like investment rounds or new shareholders joining.
