What is a shareholders agreement?

A shareholders agreement is a document used by the founders of a new company to clarify roles, how much time each party will dedicate to the business, how disputes are resolved and what happens when one partner wishes to leave.

Why would I need one?

There is a saying, you can do business with your friend but can you do business with their husband/wife? Good friends find they can't work together or have a falling out, circumstances change and a founder needs to sell, or a founder doesn't put the agreed amount of effort into the business. All of these circumstances can have very messy endings that can be avoided by having a shareholders agreement. It is effectively a pre-nup for your business! It is much easier to agree on exit strategies when everything is running smoothly, rather than trying to work out issues in a crisis mode.

Obviously if your company has only one shareholder then you don't need one. However, if your company has two or more shareholders then it could be very advisable to get a solicitor to draw up a share holders agreement.

What does it usually cover?

A shareholders agreement will usually cover the following standard topics:

  1. Aim of the company
  2. Shareholder rights and obligations including dividend distribution policies;
  3. The management and operation of the company
  4. Voting rights and the issue of new shares
  5. Share sales and termination of agreement
  6. How to restrict competition with the business, ie restraint of trade for directors and/or shareholders
  7. Dispute resolution

Remember that this is just a guide only and there is a lot of room for differences in the standard topics. Depending on your circumstances you may only want to cover some of these and include some custom sections yourself.

Do we need to talk to a lawyer?

eCompanies provides new companies with 2 or more shareholders an optional basic agreement. If you need to remove/edit any of it or you want to add clauses that aren't covered then we highly recommend you seek legal advice. A lawyer can also advise you with your circumstances in mind and their work provides an additional layer of protection with their indemnity insurance. Keeping that in mind, something is better than nothing and you may want to customise it yourself and take on the risks that that entails.

Need more information?

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Disclaimer

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