What is included in a Shareholders Agreement?
Although all Shareholders Agreements are different, there are a few generalities that one should ensure are included.
The Shareholders Agreement should clearly stipulate the regularity of the meetings, as well as how it is called. It is a good idea to provide for special circumstances where the members can deviate from the general rules, such as where a matter is so urgent that it cannot possibly hold over till the next meeting.
It is imperative that the Shareholders Agreement clearly stipulate the manner in which the profits are to be shared between the various shareholders.
The Shareholders Agreement should clearly stipulates the type of shares that are to be issued and allotted to each shareholder, as well as the amount that are to be paid in respect thereof and the manner in which it will be distributed. It will furthermore provide for guidelines that should be followed when a Shareholder wishes to sell his/her shares, and provide for a process to approve a buyer.
Board of Directors
The Shareholders Agreement governs the manner in which directors are appointed as well as the maximum number of directors that can be appointed to the board. It will also set out the manner in which the directors are removed and/or replaced, the extent of their duties and how the meetings can be arranged.
Deadlocks and Disputes
Disputes between Shareholders are inevitable. It is therefore critical that each Shareholders Agreement clearly provide guidelines to assist the Shareholders should a a dispute arise. Most agreements subject parties to alternative dispute resolutions, such as mediation, negotiation and arbitration, and only where the dispute is not resolved in that manner, will the parties be allowed to institute legal action.
What is the benefit of a Shareholders Agreement?
A Shareholders Agreement provides various benefits to the parties, such as:
- Reducing the risk for potential future disputes;
- Regulating and stipulating the rights and responsibilities of all interest parties;
- Providing clear guidelines where a shareholder wishes to alienate his or her shares;
- Providing shareholders with protection where the company is to repay a shareholder’s loan;
- Regulating the termination of the agreement, as well as the manner in which shareholders and/or directors can be removed.