Shareholder Agreements

Many start a business with a friend.  However, when business issues become a factor in a friendship, both the friendship and the business may suffer. To avoid that and to ensure effective control of the company and certainty of roles and duties of everyone involved, put your intentions in writing.

Define ways to deal with future problems

A shareholders’ agreement confirms arrangements the business partners agreed to in the first place. It will set out:

  • Exit strategy in the event of disagreements; and
  • Mechanisms to allow parting ways on fair basis.

These strategies and mechanisms save time and help avoid costly litigation. 

 Protect all your shareholders

 The corporate legislation has various rights and remedies protecting minority shareholders, giving them tools to fight for their interest. This causes the majority of Shareholders’ Disputes.  Shareholders’ Agreement will set out ways to deal with those without going to court.

FAQ for Drafting Shareholder Agreements

1. What is a shareholder agreement?

A shareholder agreement is a legal document that outlines the rights, responsibilities, and obligations of shareholders within a company. It helps prevent disputes by clearly defining how the business should be operated and how important decisions are made.

2. Why is a shareholder agreement important?

A shareholder agreement is crucial for setting out clear guidelines for decision-making, resolving disputes, protecting minority shareholders, and providing an exit strategy for shareholders. It helps ensure smooth business operations and protects the interests of all parties involved.

3. What should be included in a shareholder agreement?

A shareholder agreement typically includes clauses on share ownership, voting rights, dividend distribution, dispute resolution, exit strategies, roles and responsibilities, and procedures for selling or transferring shares.

4. How does a shareholder agreement protect minority shareholders?

A shareholder agreement can include provisions that protect minority shareholders, such as requiring a supermajority vote for major decisions, pre-emptive rights to purchase additional shares, and mechanisms for resolving disputes without litigation.

5. Can a shareholder agreement be amended?

Yes, a shareholder agreement can be amended, but it typically requires the consent of all parties involved. The agreement should outline the process for making amendments to ensure clarity and avoid disputes.

6. What happens if a shareholder agreement is breached?

If a shareholder agreement is breached, the affected party can seek remedies outlined in the agreement, such as mediation, arbitration, or legal action. The agreement should specify the consequences of a breach to ensure enforceability.

7. Do I need a lawyer to draft a shareholder agreement?

While it’s possible to draft a shareholder agreement without a lawyer, it is highly recommended to seek legal advice. A lawyer can ensure that the agreement is comprehensive, legally binding, and tailored to the specific needs of the business and its shareholders.