Categories
business & services

Reasons why you need a shareholder agreement

What is a shareholder agreement?

A shareholder agreement is an agreement between the shareholders of a company that sets out how the company will be run. It can cover things like what happens if a shareholder wants to sell their shares or if the company needs to raise money.

Why do you need a shareholder agreement?

Having a shareholder agreement in place can help to avoid problems between shareholders and can make it clear what everyone’s rights and responsibilities are. It can also help to protect the interests of minority shareholders.

Reasons why you need a shareholder agreement include:

  1. To avoid disputes between shareholders

If you’re a shareholder in a company, it’s important to have a shareholder agreement in place. This is an agreement between the shareholders that sets out how the company will be run.

A shareholder agreement can help to avoid disputes between shareholders and can make it clear what everyone’s rights and responsibilities are. It can also help to protect the interests of minority shareholders. This is especially important if there are different classes of shares (e.g., ordinary and preference shares).

  1. Protect the interests of minority shareholders

The other main reason why you might want to have a shareholder agreement is to protect the interests of minority shareholders.

If there are different classes of shares (e.g., Ordinary and Preference shares), then the agreement can set out how these shares will be treated. For example, it can give preference shareholders the right to be paid dividends before ordinary shareholders.

  1. To set out what happens if a shareholder wants to sell their shares

Another key provision in a shareholder agreement is what happens if a shareholder wants to sell their shares. This is important because you need to make sure that the company’s interests are protected.

For example, the agreement could give the other shareholders the right to buy the shares first, or it could put restrictions on who can buy the shares.

  1. To set out what happens if the company needs to raise money

Another common provision in shareholder agreements is what happens if the company needs to raise money. This is important because you need to make sure that all shareholders are treated fairly.

For example, the agreement could give preference shareholders the right to be paid back first if the company goes into liquidation.

  1. To set out what happens if the company is sold

For companies that are looking to be sold, a shareholder agreement can be used to set out how the sale will take place. This is important because you need to make sure that all shareholders are treated fairly. The agreement could give preference shareholders the right to be paid back first if the company is sold.

  1. Other important provisions

Other important provisions that are often included in shareholder agreements include:

  • Voting rights: This sets out how decisions will be made by the shareholders. For example, it could give preference shares holders more votes than ordinary shareholders.
  • Dividends: This sets out how and when dividends will be paid to shareholders.
  • Transfer of shares: This sets out what happens if a shareholder wants to transfer their shares to someone else. For example, it could give the other shareholders the right to buy the shares first.
  • Change of control: This sets out what happens if there is a change of control of the company (e.g., if it is sold).

The Razor Global Solutions team can help you to draft a shareholder agreement that is tailored to your specific needs. Contact us today to find out more.