Whether we are talking about a family company, or a company with outside investors, or a joint venture company, it is vital to set out from the outset the rights and obligations of the various shareholders, to regulate the sale of shares in the company, and to detail how the company is going to be run and how any important decisions are to be made.
We strongly recommend that all companies with more than one shareholder have a shareholders' agreement in place so that all shareholders know where they stand.
Agreements between shareholders tend to be used in three main scenarios:
- Where shareholders of a company are seeking to formalise their relationship and set out the key terms which will govern their relationship;
- Where two parties are coming together in order to pursue a venture through the formation of a company, often called joint venture companies;
- Where a third party is providing investment to a company in return for a shareholding in the company, and that person wishes to protect his or her investment;
These shareholder/ joint venture / investment agreements deal with broadly the same issues but they are all highly bespoke documents. The can be relatively simple, or they can be highly complex.
See "Areas Covered" below for some examples of matters that can be covered within a shareholders' agreement.
The primary purpose of these agreements is to protect each shareholder's investment in the company and to establish a fair relationship between the shareholders.
The agreement is entered into to provide clarity and certainty to the relationship between the shareholders.
Many costly disputes can be avoided simply by there being a tailored shareholders' agreement in place.
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