Where business operators use a Corporate Structure, and there is more than one Shareholder it is important to have a Shareholder’s Agreement.
Shareholder’s Agreements have been likened to a Commercial “pre-nuptial” Agreement.
They set the rules about the way a company operates.
These Agreements are separate from the Company Constitution.
Usually they are more detailed than the Company Constitution and often they are drawn to override the Constitution where there is conflict between the two documents.
Common contents of Shareholder’s Agreements are:
• The contributions of the shareholders when Company is incorporated;
• Management structures;
• Rules around the appointment and removal of directors;
• Business Plans, budgets and accounts;
• Controls about the transfer of shares;
• Dispute resolution;
• Retirement of Shareholders and how their shares are valued;
• Non-competition clauses;
• Confidentiality provisions.
Overall, the Shareholder’s Agreement should deal with anything that the Company’s Constitution, and the law applying to Companies does not.
They are vital to allow Companies to ride out the rough and tumble of business through the years ahead.