This article was written in conjunction with Tamra Seaton of Keypoint Law (an expert in all facets of commercial law impacting the small to medium enterprise sector) and David Screaigh of Zircom Business Brokers. The need for a shareholders agreement typically occurs where there is more than one shareholder.
A shareholders agreement is essentially a binding contract between shareholders of a company which typically covers:
- Who controls the company/decision-making protocols – an example of this is outlining voting rights of directors and shareholders;
- How the company will be managed – for example, appointment of directors, delegative authorities for directors/shareholders in decision-making;
- Rights and responsibilities of shareholders and directors – for example, policy around dividend payments to shareholders, work and management duties;
- Dispute resolution/protection of shareholders’ rights – outlining procedures for resolving disputes;
- Process/procedure of how shareholders can buy and sell shares – for example, who gets first option to buy, or what the process is if a share price cannot be agreed upon.
- Typically where the price is not agreed on, the agreement will direct the shareholders to jointly appoint a business valuer to determine the value. Some agreements will also define elements of valuation method to be used.
Although the vast majority of businesses/companies start with shareholders on friendly terms, the agreement should be drafted assuming conflict will occur. A well-drafted shareholders agreement should include the following…
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