5 things you
need to know
about
Shareholders Agreement and Deeds
5 things you need to know about Shareholders Agreement and Deeds
- A shareholders agreement is one of a company’s most important documents. It sets out the agreement between the shareholders as to how the company will be run and governs the relationship between the individual shareholders. A well-drafted shareholders agreement protects majority shareholders, minority shareholders and the company.
- A shareholders agreement explains how decisions will be made and who makes what decisions. For example, the key employees may draft a business plan and budget that company directors will then approve. A well-drafted shareholders agreement limits the likelihood of disputes, enables the smooth functioning of your company, and provides a point of reference for both shareholders and potential investors.
- A shareholders agreement states the rules on who can appoint directors. For example, founders might want an entrenched right to appoint a director, or shareholders who hold 25% or more of the shares can appoint, or an appointment might be by a vote of directors holding 50% or more of the shares. A shareholders agreement should set out which decisions must be made by directors and which decisions must be made by the shareholders.
- A well-drafted shareholders agreement may have “tag-along” and “drag-along” clauses to address what happens if a bidder wants to buy the whole company or the majority shareholder’s shares, and the rights of the other shareholders should this occur.
- A shareholders agreement should address how new shares can be issued and how shares can be sold. You may also incentivise key employees by implementing an employee share scheme. In doing so, you can attract top talent by supplementing their package with options or shares that vest over time or when pre-agreed performance criteria are met. Finally, make sure that you think about your exit strategy when drafting your shareholders agreement.
