There are many things you need to consider when starting up, but one key thing to add to your to do list a Shareholders’ Agreement. A Shareholders’ Agreement is one of the most important documents a private company should have. Such a document will set out the rules, obligations and responsibilities of the shareholders, their relationship with each other and their relationship with the company.
Even though there is no legal requirement to have a formal Shareholders’ Agreement, every company with more than one shareholder is well advised to have one. Often people think they understand each other and have common goals, but as the business changes or issues arise views can change and diversity can arise. Often when the profits start to increase one may want to invest and grow the business; others may want to reap the rewards personally or when profits are very low one may want to find an investor, a loan or another shareholder the other one may want to struggle through to retain ownership. Putting this framework in place to resolve potential issues/disputes before they happen enables shareholders to work through a process that they have all agreed to, rather than having to decide how matters will be resolved or having to ask a court to decide. As a result, it will reduce the potential for conflict between shareholders and help the company to be run smoothly and profitably.
What contents will be included in Shareholders’ Agreements?
The contents of a Shareholders’ Agreement will vary for every company. Each agreement needs to be bespoke and tailored to the needs of the parties involved.
