Does my company need a shareholders agreement?

No, it is not mandatory for the companies to enter into the shareholder agreement. However the companies prefer the shareholder agreement due to its flexibility. It is a private document and does not need to be registered at the companies house. The subject matter of the contract can be anything relating to the company and the shareholders. Shareholder agreement is a contract between the shareholders of the company for adopting the procedure for running the internal affairs of the company. It is a private document and avoids the disputes between the shareholders of the company. It creates the personal agreement and does not become a regulation of the company. The agreement can include all or some of the shareholders. It is an important document because it minimises the monopoly of the majority of the shareholder and provides protection to the minority of the shareholders. It is not legal duty of the company to have a shareholder agreement in place. It is very difficult to amend it as compare to articles of association. Articles of association can be amended by the seventy five percentage of the vote. The shareholder agreement provides the solution about the: dividends payment; limitations on the transfer of existing shares; options to acquire each others shares in certain circumstances; what is to happen on the retirement, death or incapacity of a shareholder; voting procedure; non competing with the business of the company. Recognition of shareholder agreement The Companies Act 2006 validates the shareholder agreement. It provides the opportunity to stop the operation of the companys constitution. Public is not allowed to inspect this document and it protects the business secrets and management plan of the company. The House of Lords judgment in Russell v Northern Bank [1992] 1 WLR 588 goes far in accepting shareholders agreements. A shareholder's agreement is legally binding. The constitutional document of the company often does not describe in great detail the relationship amongst the shareholders. Therefore it is very useful document to describe in great details the relationship of the shareholders with each other. It is a superior to articles of association. It will prevail in case of disputes between these two documents. Advantages Shareholder agreement takes place where the companies law is silent shareholder agreement protects the business ideas and structure of the administration of the company. No one can inspect such a document under the law .Shareholder agreement is a legally binding agreement. Shareholder agreement template has numerous advantages. Such as: Constitute overall business strategy; Protect the management strategy of the company; Protect the confidential information; Protect the interest of the minority of the shareholders; Promote mutual understanding among the shareholders Features of the shareholder agreement Obligations of the company to the shareholders; how shareholders will maintain their rights if they are not present at meetings; roles of directors and actions by the company or a director which require shareholders consent: controls and redistributes power between shareholders so that majority shareholders cannot force decisions; new shareholder rights and restrictions: even if he is a trustee in bankruptcy; how to deal with new intellectual property; transfers of shares and rights of pre-emption: when allowed, under what conditions and to whom; exit strategy: the hidden bomb if neglected;

key man insurance; publicity about the deal; confidentiality; use of a shareholders own assets in the business.

Net Lawman provides the following shareholder agreement. Such as Shareholders agreement: new company with shareholder directors A comprehensive shareholders agreement for a new company. Use this agreement to protect the rights of each shareholder against each other and also for setting down the strategic management of the company. This agreement could be put in place at the time of incorporation or shortly afterwards in order to set out the balance of shareholder power as the company grows. It is suitable for companies where all or some shareholders are also directors, or where there is a mix of active and inactive owners. Shareholders agreement: new company with shareholder directors and a major lender A comprehensive shareholders agreement for a new company that has also been financed with debt from a big lender as well as equity. Use this agreement to protect the rights of each shareholder against each other and the debt provider and also for setting down the strategic management of the company. This agreement could be put in place at the time of incorporation or shortly afterwards in order to set out the balance of shareholder power as the company grows. It is suitable for companies where all or some shareholders are also directors, or where there is a mix of active and inactive owners. Shareholders agreement: existing company with shareholder directors and debt financing A comprehensive shareholders agreement for an existing company. Use this agreement to protect the rights of each shareholder against each other and also for setting down the strategic management of the company. This agreement could be put in place perhaps on the introduction of new shareholders or directors, a new financing round, or after restructuring, or simply to redress the balance of shareholder power as the company grows. It is suitable for companies where all or some shareholders are also directors, or where there is a mix of active and inactive owners. Shareholders agreement: existing company; shareholder-directors A comprehensive shareholders agreement for an existing company that also has debt financing from a big lender such as a business angel or venture capitalist. Use this agreement to protect the rights of each shareholder against each other and the debt provider and also for setting down the strategic management of the company. This agreement could be put in place perhaps on the introduction of new shareholders or directors, a new financing round, or after restructuring, or simply to redress the balance of shareholder power as the company grows. It is suitable for companies where all or some shareholders are also directors, or where there is a mix of active and inactive owners. About the Author: Nazir is an independent writer who is interested in the convergence of technology and law. He writes about the legal issues that face individuals and small and medium sized businesses, emphasising how the Internet has changed practice of the law and the delivery of legal services.