When setting up a company it is easy to assume that a bright future lies ahead.
You have a great, profitable idea and you have chosen a business partner you trust. So what could possibly go wrong? A shareholder agreement will protect you from arguments resulting in costly and acrimonious legal battles that could leave you with nothing – in effect, a business pre-nuptial agreement.
Some key reasons for setting up a shareholder agreement are as follows:
1. The shareholder agreement sits alongside the company’s articles of association, which includes the main provisions defining how the company operates. However, the shareholder agreement can be more dedicated to the particular needs and concerns of shareholders. It is also a confidential document as it is not a public document, unlike the articles of association.
2. You can reduce the potential for future disputes between shareholders. The shareholder agreement defines how decisions should be made and outlines the responsibilities and obligations of different parties. If a dispute does occur, it can include procedures for dispute resolution which is a cheaper alternative to legal action.
3. The agreement can force shareholders to give up their shares when they cease to be a director or employee of the company, if they die, if they are made bankrupt or they breach contain terms. It can also stipulate how the shares are valued in such circumstances.
