They say that the only certainties in life are death and taxes but you could also add to these disagreements! When running a company, disputes may happen and if there is no pre-agreed mechanism for dealing with disputes, then it can become very fraught and end up in Court costing thousands in legal fees or even the company being wound up.
A company constitution contains some provisions regarding the rights of the shareholders, holding of company meetings etc however unless it has been tailored for the company, it will not contain specific requirements or deal with potential issues or conflicts.
What is a Shareholder Agreement?
A Shareholder Agreement is a contract between the shareholders in a company and often the company itself in relation to how the company is going to be operated. The agreement sets out the rights and obligations of all parties to the agreement and gives clarity on how the company will be operated. This allows the shareholders to agree on how future decisions will be made and if there is a dispute or a shareholder wants to leave there is a pre-agreed mechanism in place.
One of the main advantages of a shareholder agreement is that it is a private document between the parties and unlike the company constitution it is not filed in the Companies Registration Office and made public.
The agreement may cover a number of different topics including:-
- Future funding
- Key decisions requiring shareholder approval
- Disputes and if a shareholder wants to leave and transfer or have their shares bought back
What companies should consider putting an agreement in place?
All companies should consider but in particular the following
- Family run companies
- Start-up companies
- Companies taking on new investment
Who prepares the agreement?
A solicitor should be engaged to prepare the shareholder agreement. The solicitor should be independent of the shareholders who are party to the agreement so that it can be prepared without favouring either party.
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