What you need to know about Shareholder Agreements

Congratulations on starting a business – you have an exciting ride ahead of you! While many people focus on branding, product details and their choice of office chair, it’s actually also really important to consider the legal aspect of your business, too – your Shareholders’ Agreement, in particular.

A Shareholders’ Agreement is an agreement between the shareholders of a company that regulates dealings between them, between a shareholder and the company and which sets out some rules around how certain decisions will be made throughout the shareholder relationship.

A Constitution is similar, however it is usually a standard document that does not go into the same level of detail, and it’s also a public document. By contrast, a Shareholders Agreement is usually (and we would recommend) tailored to your specific needs and relationship. It is a detailed and private document between the shareholders.

A Shareholders’ Agreement is a vital tool when a business relationship breaks down, or in the event of death or illness. It can provide for a speedy resolution to the dispute or unforeseen event, thereby minimising harm to the value of the business and ultimately the shareholders’ investment in the company.

Some of the more important things a Shareholders’ Agreement might include are:

  • Exit strategy. How does a shareholder get out if they no longer wish to be a shareholder in the company? How will that affect the remaining shareholder(s)? What if someone dies – should their spouse or partner be able to remain in the company, or should they be bought out? If bought out, how will that be funded and over what period of time?
  • Dispute resolution. How will the parties resolve a major dispute? One that is harming the functioning and value of the business to such an extent that if it continues on then the shareholders’ investment in the company will be damaged? There are a number of options available in these situations.
  • Important decisions. What decisions do the parties regard as important, that would require a set level of approval before they can be implemented? This might include spending above a certain level, employment of personnel, funding, entering into leases and much more. 

These are just a small sample of the matters a Shareholders’ Agreement can and should deal with. If you are in business with others – or are about to do so – contact us to discuss a Shareholders’ Agreement. As always, it pays to have something in place before you need it.

Phone the Rice Craig office on 09 295 1700 to be put through to one of our helpful lawyers who help you with a Shareholders’ Agreement.

Get in touch with us today!