A Shareholders Agreement is a crucial legal document that is designed to safeguard the rights and interests of the shareholders within a company. This agreement is legally binding and applies only to the parties involved, creating a formal contractual relationship between them. The goal of a Shareholder Agreement is to provide a framework for decision-making, protect minority shareholders, regulate the transfer of shares, and ensure the smooth operation of the company.
The Shareholders can enter into this Agreement at any time before or after the commencement of the Company. This Agreement can be used for both Private and Public companies. It is better to cross-check the by-laws of the Company mentioned under the Articles of Association (AoA) before drafting this Agreement to avoid any disparity.
Is it mandatory to have a Shareholder Agreement?
No, it is not mandatory. However, it provides clarity on the roles, responsibilities, and expectations of shareholders and helps prevent disputes in future.
What must a Shareholders Agreement contain?
This Shareholder's Agreement includes the following details:
-
Party Details: details of the Parties entering into this Agreement.
-
Authorized capital: the total authorized capital of the Company.
-
Shares and ownership: the Shares held by each Shareholder and their percentage of Company ownership.
-
First refusal rights: the details of the first refusal right by other Shareholders before transferring any Shares.
-
Obligations of Directors: provisions related to the rights and obligations of the Directors/Board.
-
Management: details related to the management of the Company.
-
Termination: conditions under which the agreement can be terminated.
Who can enter into a Shareholder Agreement?
Any individual above the age of 18 years or legal entity who is also a shareholder in the company the Shareholder Agreement is related to.
What can be the duration of a Shareholder Agreement?
There is no fixed duration for the Shareholder Agreement. The duration can be fixed under the Shareholder Agreement such as for a fixed period, conditional termination, or upon closure of the company.