What You Need To Know About Your Company Having A Shareholders’ Agreement
Many factors will determine whether or not your company requires a shareholders’ agreement, and your commercial lawyers from Rowe Bristol Lawyers will advise you accordingly to allow you to make that decision and take any necessary actions required to facilitate a shareholders’ agreement with their assistance.
For any company owner who is not familiar with what a shareholders’ agreement is, we have outlined the basic details below and should it apply to your circumstances, why you should approach your commercial lawyers to ask them to create one. We have also highlighted five of the main reasons why your company may wish to have that shareholders’ agreement created by your commercial lawyers.
What Is A Shareholders’ Agreement?
It is a legally binding agreement that outlines the governance and control of a company that has shareholders and sets out the relationship between those shareholders, the company’s board of directors, and the company’s employees. It should be noted that a shareholders’ agreement is not the same as the written constitution of a company, which most companies create when they incorporate.
The difference between a company’s constitution and its shareholders’ agreement, is that the constitution will outline the specific day-to-day administration of the company, decision-making protocols, and matters relating to share permissions. Alternatively, a shareholder’s agreement will focus more on the relationships as mentioned above and specifics like procedures for replacing directors, share transfers to third parties, acquisitions, mergers, and shareholder disputes.
Why Should Your Company Have A Shareholders’ Agreement?
As your commercial lawyers will tell you, the main reason does not include them being a legal requirement under commercial law, because they are not, however, they will also tell you they are regarded as essential for several other reasons. These relate to disputes, rights, obligations, and even finances as not having a shareholders’ agreement can be costly. To give you a fuller insight into these reasons, here are five of the most important.
Potential Investors Have Clarity On The Company Shareholders’ Rights And Obligations
When doing their due diligence, potential investors will wish to understand the rights, responsibilities, rules, and protocols that apply to them as shareholders before they invest. A shareholders’ agreement is the perfect means to achieve that and also enlightens them as to how they should conduct themselves should they become a shareholder.
Identifies That The Company Takes Shareholder Rights And Protections Seriously
Having a shareholders’ agreement properly implemented by your commercial lawyers, will be a hugely positive signal, not just to potential investors, but others with any legitimate interest in your company. It highlights that the company is mature, properly structured, credible, and attuned to its shareholders’ rights, responsibilities, and protections.
Reduces The Chances Of Shareholder Disputes
Shareholder disputes can be messy and costly affairs and for those two reasons alone, should be avoided if possible. Having a shareholders’ agreement can help achieve that aim as it gives all shareholders a clear outline of what their rights and responsibilities are, and this can prevent disputes from occurring due to ignorance of them due to a lack of any formal agreement.
If Shareholder Disputes Do Occur, It Outlines The Process For Resolving Them
Despite it helping to avoid them, a shareholders’ agreement does not make it impossible for a dispute to arise. However, if it is in place thanks to your commercial lawyers creating it properly, then it will have measures outlined therein to help resolve such disputes fairly, timely, and at minimum cost to all concerned.
Provides Protections For The Company’s Founding Shareholders
This will be especially important if you, either solely, or with partners, are the founder shareholder of the company. A shareholders’ agreement being in place as other investors join and become shareholders, can help protect the initial capital invested, and also ensure the company you founded retains good governance.
