- 1A 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.
- 2A shareholders agreement sets out how decisions will be made, and who makes what decisions. For example, the key employees may draft a business plan and budget that is then approved by the directors. 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.
- 3A shareholders agreement should set out who can appoint directors — for example shareholders who hold 25% or more of the shares, or a vote of shareholders owning 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.
- 4A 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.
- 5A shareholders agreement should address how new shares can be issued, and how shares can be sold. You may also incentivise key employees by issuing them with shares over time or when pre-agreed performance criteria are met. This is called vesting. Finally, make sure that you think about your exit strategy when drafting your shareholders agreement.
If you need more information about Shareholders Agreements, speak to one of LegalVision’s specialist lawyers. Call us or fill out the form on this page. You can also download a free Shareholders Agreement from our site.