What Is A Shareholders’ Agreement And Why Do You Need It?
Andrew Jeffers | March 01, 2018
Have you signed a shareholders’ agreement before starting your company?
So many clients have come to see me over the years because they were having problems with their business partners. More often than not, when business partners have problems, their business also suffers.
Their biggest problem was that they never thought about signing a shareholders’ agreement before they started their companies.
It’s important to understand what defines a shareholders’ agreement and why you need one. I am going to share a simple yet comprehensive guide that will make things clearer for you.
What is a shareholders’ agreement?
Simply put, a shareholders’ agreement (SHA) is an understanding between all the shareholders about how the business should be run.
An SHA can help establish things like electing directors or planning a course of action if the partners don’t see eye to eye or want to leave the business for whatever reason.
The advantage of drafting an SHA is that it offers a solid fall back position for when the partners are in crisis.
Why is important to have a shareholders’ agreement?
An SHA offers you a legal system, a set of binding regulations that help the business partners deal with certain issues.
Tip: The best way to sign an SHA is at the beginning of your partnership or company.
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How does a shareholders’ agreement work?
Every company has its own constitution. Just like our country has its own Australian constitution.
A company’s constitution provides the rules and regulations on how to run your business. However, it misses out on some important things.
This is where a shareholder agreement can come in handy and fill in some of those gaps by providing additional guidelines on how the business should be run.
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What can a shareholders’ agreement cover?
A shareholders’ agreement can cover a lot of issues including:
How much the partners are allowed to spend without having a board meeting to decide
What happens if somebody wants to sell the business and whether they have to offer their share to their business partners first?
Establish protocol if they get an offer from another company ie should the partners be forced to sign over their shares in order to move ahead with a good offer?
All these kind of operational issues can get covered in a good shareholder agreement. An SHA can help a business form a good legal and financial foundation for the future.
How to get a shareholders’ agreement
Since this is a legal document, you need to contact a lawyer. Make sure you find a good lawyer and sign your shareholder agreement with your business partner before you start your business. It will give you a strong foundation and save you a lot of trouble.
If you want every partner in your business to know where they’re at and what’s expected of them, a shareholder’s agreement is the way to go.
I can assist you in making the right decisions when it comes to your business. Whether you have questions about tax or accounting practices or company set up, I am here to help. Let’s get in touch now.