Shareholders Agreement
If you are going into business with one or more people, whether in the form of a company or trust or joint venture, or you are already a shareholder in a company and you don't have a shareholders agreement, you are taking a big risk.
Why is a shareholders agreement so important?
A professional shareholders agreement will prevent a lot of problems which can cripple a company or at least put a big hole in the value of the business. It will also minimise the damage caused by problems that can't be prevented.
What type of problems will it prevent?
Misunderstandings or disagreements
Misunderstandings or disagreements between the owners or shareholders in a business are responsible for a lot of business problems and friends falling out. Agreeing on the rights, obligations and roles of the shareholders and recording these in a shareholders agreement will go a long way to preventing this happening.
Disagreements becoming disasters
Not all disagreements can be avoided. If a serious disagreement can't be resolved, something has to give. Usually someone has to go. But who will buy their shares and at what price? Invariably the person who agrees to leave (if anyone) thinks their shares are worth a lot more than the others think which makes it extremely difficult to get agreement on the sale price.
Minority shareholders being locked in
When this happens, it is not uncommon for it to end in court. Usually a court will order the company to be wound up which means the business will be sold by a liquidator for whatever he can get. A shareholders agreement will provide a way to resolve this sort of problem and avoid court.
Other problems
There are many other problems which need to be addressed by a shareholders agreement. Identifying the causes of these problems enables solutions to be agreed to in advance. A list of the major causes of problems in jointly owned businesses and private companies can be found in our paper (see below).
It won't happen to me
It doesn't matter how well you know your fellow shareholders, this is no guarantee that problems will not arise in the future. For example:
- People's interests and objectives can change for reasons unrelated to the business itself - personal financial issues, family problems, health etc.
- External factors such as changes in the economy or in your market can cause a downturn in business, extra stress and pressure on personal relationships.
Streamlined process for shareholders agreement
There is no such thing as a standard shareholders agreement which means that a contract needs to be customised for each company or joint venture. In the past, this was a time consuming, complex and expensive process.
This is no longer the case. We have streamlined the process so as to minimise the amount of time and money that you have to spend.
Complimentary paper on shareholders agreements
If you would like to learn more about the problems and what can be done about them - e.g. how to protect the interests of both minority and majority shareholders - everything you need to know is in an introductory article on the subject or our more comprehensive 18 page paper. These can be obtained by completing the Contact us page.