What is a shareholder’s agreement?

What is a shareholder’s agreement?

July 23, 2019

If you are going into business with others and are looking to properly secure your investment on laid down terms and conditions, then its advisable you consider putting a shareholders’ agreement in place to protect both the business enterprise and your own investment in the company.

A shareholders’ agreement is an agreement among a company’s shareholders that describes how the company should be operated and outlines shareholders’ rights and obligations. It is advisable that this agreement be drafted and signed when the company is being formed. The agreement also includes information on the management of the company and privileges and protection of shareholders. Its purpose is to protect the shareholders’ investment in the company, to establish a fair relationship between the shareholders and govern how the company is run. The agreement will contain specific, important and practical rules relating to the company and the relationship between the shareholders

An ideal shareholder’s agreement should have the below contents;

  • State details of optional versus mandatory buying-back of shares by the company in the event that a shareholder gives his/her shares up.
  • State how and when dividends are to be paid
  • Set out the shareholders’ rights and obligations;
  • Regulate the sale of shares in the company;
  • Provide an element of protection for minority shareholders and the company; and
  • Define how important decisions are to be made.
  • Contain a right of first refusal clause, detailing how the company has the right to purchase a selling shareholder’s securities prior to she/he selling to an outside party
  • State dispute resolution measures
  • State notation of a fair price for shares, either re-calculated annually or via a formula

Do you have any question or clarification regarding the topic in this post that was not answered/provided by this post? Or you have questions regarding what the law states about a particular legal issue? Log on to our website – www.618bees.com or call us on 23412803791 to speak to any of our consultants that are always on hand to provide answers to such questions.

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