Want to Learn More on Drafting and Reviewing of Shareholder Agreement? You’ve Come to the Right Place!
Shareholders or stockholders are the biggest players in a company. Stockholders own at least one share of the total company stock also known as equity. In a company, the shareholders are immensely important as they are the major investors who funded the company with financial help. Therefore, it goes without saying that shareholders have a massive fiduciary responsibility and play a vital role in the makings of a company and driving it forward. A shareholder agreement is not made compulsory by law, but it is imperative that we recognise the significance and the seriousness of having the said agreement. If you want to learn the art of drafting and reviewing of a shareholder agreement, read on!
What Do Shareholders Do?
Shareholders decide and vote on taking decisions in the company. The members of shareholders have the right to inspect the company’s records, sue any misdeeds that have been committed by the corporation and a rightful claim on the proportional allocation of proceeds if a company decides to dissolve and liquidate.
Majority shareholders own 50% or more in the company, whereas fewer minorities are those parties who own less than 50%. Being a shareholder presents many benefits to one, such as increased stock value and lucrative dividends. However, shareholders are also susceptible to losing their investments, in the case of stock markets gone wrong.
What Should Be in a Shareholder Agreement?
The drafting and reviewing of shareholder agreement are fairly simple. In the agreement, be sure to include essential details such as rights, business plans and blueprints, dividend policies, capital structure and finance update, board composition and more. Apart from that, the agreement covers the responsibilities of all parties involved, such as appointing directors who will act on behalf of the shareholders in the best interest of the company.
Among the things to be included in the agreement are:
- Full names and titles
- Position and percentage of share
- Pre-emptive rights for current shareholders to purchase shares
- Details of payment if the company is sold
Why Can’t We Skip on the Shareholder Agreement?
You can, but do you want to? A shareholder agreement is a legally binding contract that holds the shareholders accountable. It helps to strengthen the camaraderie between the shareholders and the company, ensures everyone in the board is treated fairly and creates stability and consistency in terms of running a company. Plus, an agreement will serve as a basis when there comes a time to settle a dispute and outline the restrictions, so your company is protected, and no one acts out of line. If they did, then the parties that breached the agreement will be facing severe legal consequences.
The agreement also works wonders for potential funders; third party investors who are looking at your company will be attracted by how well it is managed. Having a solid top management level demonstrates security and reliability, which shows that your company is worth the investment.
The Bottom Line
Excitement reeks in the air when you start your business, and of course, at that point, when everything is seemingly doing well, you would not prioritise a shareholder’s agreement. However, a shareholder agreement is necessary and acts as your insurance to shield you on a cloudy day later. Hence, if you do not have a shareholder’s agreement, get it done right away!