Tuesday, 19 June 2012

Baxendale Walker asks signing a shareholder’s agreement – a good idea?

Baxendale Walker asks signing a shareholder’s agreement – a good idea?
Simply put, a shareholder’s agreement is a contract for a business’s shareholders. It regulates the shareholder’s professional relationship with other shareholders, as well as the business itself. There’s no legal obligation for shareholders to enter into this type of contract, and even if they do, there are no legal requirements regarding the content of the document. This kind of agreement is entered into by the shareholders voluntarily, so as to provide guidelines which they should all follow, to help resolve disputes which arise, and to ensure that their investments are protected.
So, from a shareholder’s perspective, is there a need for one? Well, not necessarily, but it could prove useful in a number of different circumstances. As mentioned earlier, no-one is legally obliged to sign a shareholder’s agreement, however it a contract such as this can alter the default legal relationship which exists between the shareholder and the business in a way which benefits everyone in involved; these alterations might include additional provisions for the protection of investments, and notes regarding what steps to take, should certain conflicts arise.
Some of the key advantages of a shareholder agreement include the ability to impose restrictions on how shares are transferred and mandated, allowing for more control over who owns the shares in the business. Minority shareholders will also usually be offered more protection in a shareholder contract, and the appointment of directors will often be included, as well as the terms of their employment. Shareholder’s agreements generally add notes on how the business is to be financed, and there will be clear rules set out regarding the dividends of payments, including the director’s fees and salary.
As for when a shareholder agreement should be entered into, this will vary from business to business. From a legal perspective, shareholders are free to enter into it at any time; before the business has been formed, or later on after it has been established. However, it is generally recommended that those interested, agree to the terms of the contract as soon as possible, as if conflicts arise, or a shareholder decides to transfer their shares before having signed this contract, then it will be too late to attempt negotiations. With this in mind, shareholders should try to set up the terms of this contract when the business is being created, or very soon after it begins operations, as this will ultimately make life easier for the shareholder’s involved.