A contract stipulating terms for all matters concerning shareholders of the company.
A Shareholders’ Agreement is a contract between the shareholders of a company. It regulates the relationship between the shareholders and governs how a company is to be run.
This Shareholders’ Agreement can be tailored to your company’s requirements and is an important tool to help ensure the smooth running of your company and minimise the risk of disputes between shareholders. In particular, it includes important provisions setting out how and when shares can be issued or transferred, who should be responsible for approving shareholder decisions on certain important matters, and ultimately how and when your company can be sold.
This template shareholders’ agreement should be signed by a director on behalf of your company, and by all of your company’s shareholders.
Without a shareholders’ agreement in place, you may face disagreements between your shareholders on matters such as whether any important decisions, such as issuing more shares which dilute the power of existing shareholders or purchasing another business, need consent from all or nearly all shareholders; if any shareholder can transfer their shares as they think fit without first offering them to the other shareholders; and when your business is sold and how you go about this.
In the absence of a shareholders’ agreement, unless a matter specifically requires shareholder approval under company law or under the terms of your articles of association, it will be decided at the board level by default. This can be undesirable for certain key or sensitive decisions.
You should also bear in mind that if ownership of your company is shared evenly (for instance a 50:50 jointly-owned company), without a shareholders’ agreement there is also a chance of deadlock occurring. In the absence of a shareholders’ agreement, if the joint-owners of a company disagree on a certain matter, it can be very difficult to find a solution. A shareholders’ agreement seeks to pre-empt this by clearly allocating responsibility for decisions on certain key matters, and including a mechanism for resolving any deadlock which might occur.
This shareholders’ agreement contains provisions regarding:
- the business of your company;
- the composition and chair of your company’s board;
- transfer of existing shares and issue of new shares;
- what happens when a shareholder dies;
- which decisions should require shareholders’ consent;
- when minority shareholders can be required to sell their shares; and
- how shareholders should resolve any deadlock or dispute which might occur.
You should use this Shareholders’ Agreement if:
- your company has more than one shareholder;
- your company has only one class of ordinary shares;
- you do not currently have a shareholders’ agreement; and
- your company currently uses the default model articles of association.
It can be used when you first set up your company or at any time after your company has been set up.
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Every business should have its own, tailor-made standard contracts for customers which reflect the way it does business.
Having your own standard terms will ensure that you’re able to provide the protection that your business needs and will enhance your reputation because customers will know what to expect from you and what happens if things go wrong.
To be effective, your standard terms must reflect the way you do business and protect your business from the specific risks you face. In contrast, we know that many businesses resort to relying on generic templates or re-purposing contracts obtained from competitors or previous employers. The problem is that these contracts often do not match up with your or your customers’ expectations and fail to adequately protect your business because important risks are not properly addressed. Poorly drafted or ill-suited contracts are often not worth the paper they are written on.