5 Benefits of Having a Shareholders Agreement In South Africa

A Shareholders Agreement will provide various benefits to all parties involved. We have noted five main advantages of a Shareholders Agreement that has been appropriately structured and correctly drafted and concluded after proper analysis by commercial attorneys specializing in Shareholders Agreements.

They are as follows:

  1. Potential disputes are reduced.

Enunciating the terms and conditions governing the shareholder relationship reduces the grey areas for all involved parties. Any dispute, irrespective of its materiality, places immense pressure on a company, its shareholders and ultimately, its employees. By ensuring that areas that can cause conflict are regulated, one can ensure that foreseeable disputes are eliminated.

  1. The rights and responsibilities of all parties are stipulated and regulated.

The Shareholders Agreement specify the rights and duties of all Shareholders. This way, one can ensure that all parties know what is expected of them and which remedies are available in the event that they find themselves in challenging circumstances.

  1. Provides clear guidelines where a shareholder wishes to sell his/her shares.

The sale of shares is an area that can very easily cause wariness between Shareholders. The remaining Shareholders requires and deserve the peace of mind as to whom the new Shareholder will be, and what their role in the company will entail.

  1. Provides Shareholders with protection where the company is to repay a shareholders loan.

Generally, and especially with start-up, companies require equity to commence with trading. Typically, this equity will be provided by the Shareholders via Shareholder loans, which ultimately needs to be repaid. By preparing a clause to regulate these paybacks, such as setting certain requirements before the loans can be repaid, the Shareholders can rest assured that the company will not become insolvent by repaying the loans.

  1. Regulates the termination of the agreement and how shareholders/directors are removed.

The termination or resignation of a Shareholder or Director can be an unnerving event in the history of any company, and more so the nomination thereafter. Shareholders can tailor these clause, subject to the requirements of the Companies Act, to suit their needs as well as the needs of the company. Failure to terminate an employment agreement correctly can lead to various lawsuits against the company. It is thus critical to ensure that the Shareholders Agreement is compliant with the requirements of the Companies Act as well as the Labour Relations Act.

Contact our legal team for more information on structuring a Shareholders’ Agreement to benefit your company’s needs and requirements.