Why Do We Need Shareholder Agreements?
When setting up a business, it is easy to assume that things will go smoothly and nothing will go wrong between your business partners in the future. No matter how well your business is set up or how much you trust your business partners, the business & corporate lawyers often advise having a Shareholders’ Agreement in order to further regulate how the business will be conducted and the interest of all parties will be protected.
A shareholders' agreement is an agreement among the corporations’ shareholders that describes how the corporation should be operated and outlines shareholders' rights and obligations.
Benefits of Shareholders’ Agreement:
- The shareholders' agreement is intended to make sure that shareholders are treated fairly and that their rights are protected.
- A well drafted shareholders’ agreement can help retain business stability. At the outset of the business, all parties have common interest to make the business succeed. There is very little attention paid to what will happen if there is a dispute or difference of opinion between various shareholders. The process of drafting a shareholder agreement brings the parties attention to matters which may cause a difference of opinion in operation of business and relationship of the parties. The shareholders’ agreement will set out clearly in the end result of the discussion on these matters, therefore, reducing the potential for future dispute by providing a framework and procedures for dispute resolution.
- The shareholders’ agreement usually provides a mechanism that effectively gives the corporation and the shareholders’ a clear mechanism for transfer of shares. This can help to restrict the shares from being transferred to third parties.
- The shareholders’ agreement prevents situations where changes in one shareholder’s personal circumstances can have an effect on the corporation or other shareholders within the company, safeguarding each shareholder’s financial interest in the company, and the interests of the shareholders’ families in the event of the death of a shareholder.
These are just a few useful reasons why a Shareholders’ Agreement is important. If you want to discuss a Shareholders’ Agreement to protect the interest of your corporation and shareholders, please do not hesitate to contact the business and corporate lawyers at Madaans LLP.
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