The benefits of the Shareholders Agreement is that it will ensure those involved are aware of their roles and clearly identify who has the rights and powers within. The agreement should also look to the future and consider key events such as the death or sickness of a key member.
- To protect the shareholders and to ensure that the business remains family owned unless there is a collective intention to sell. Restrictions on selling shares. It can provide a right of first refusal for existing shareholders before sale of shares to third parties. These provisions may also deal with what happens to the shares on death, mental incapacity or divorce. Additionally key man insurance and cross option rights can ensure that surviving shareholders have the finance and a right to buy out a deceased’s share.
- To define the business of the company.
- To impose controls on the manner in which the company is operated, both at board level and at shareholder level. These controls may be negative (i.e. restricting what can be done without shareholder consent) or positive (i.e annual agreed business plans).
- To provide protections for minority shareholders or shareholders not involved in the day-to-day running of the company by listing matters reserved for a specified percentage of shareholders approval.
- To provide for the board of directors. Who has the right to appoint, and remove?
- To address dividend policies so that family members get what they expect out of the company by way of profits every year. There may also be an agreement on salaries also.
- To provide for a process for resolving disputes such as mediation, arbitration, litigation, forced sales of shares which will reduce legal costs and keep matters private.
A shareholders’ agreement exists in connection with the articles of association. It is a confidential document and private can be included.
The shareholders’ agreement helps avoids conflict, sets out an agreed position as to how the company must be operated and gives certainty to all.
If you feel that such an agreement could benefit your business please make contact us for a free initial consultation at firstname.lastname@example.org or 02830267134.