Do you really need a Shareholders’ Agreement?
Do you really need a shareholder’s agreement? Yes.
If you own your company jointly with other people, then you need to have a shareholders’ agreement. This is an important tool that forms part of your succession or exit plan, and it mitigates the risks associated with unplanned exits.
A shareholders’ agreement acts as a framework for how you want the shareholders and directors to make decisions. Now, if a shareholder or director needs to exit suddenly due to relationship breakdown, illness, death, or some other unplanned reason, then the shareholders’ agreement will guide the business owners through a step-by-step process to facilitate that exit.
A good agreement takes away the need to make tough and emotional decisions during an already stressful period. The agreement should also cover the directors’ remuneration, dividends, and raising capital. Now, a share in a company is an asset, and there’s no legal obligation of tying ownership of that share to a related person’s employment or directorship of that company. This means that without other contractual obligations being placed on the shareholders, there’s no way to force a person to transfer their shares, and you could end up with shareholders who are no longer adding value to the future of your business.
Now, the agreement doesn’t need to be complicated, but it does need to be tailored to you and your business, and it’s also worth reviewing your agreement regularly to ensure that it’s still fit for purpose. If your company doesn’t have a shareholders’ agreement, now is a great time to sit down with your business partners and your advisers to capture a framework for decision-making and how you would like your business to continue, if one of the owners has to exit. This important document will help ensure that any exit is managed while preserving both personal relationships and the value of your business.