Shareholder Agreements

Why Are Shareholder Agreements Important?

Shareholder agreements are a vital part of a company’s structure. They outline the agreement between the shareholders – the people who invest their money in a company – and the company directors – the people who decide how to spend this money.

While shareholder agreements can be complex and somewhat difficult to set up, it is important to realise that they are extremely important. They need to be drafted with the help of high-quality commercial lawyers to make sure that they are error free and that they encompass the necessary information, and they need to be treated like the important legal document that they are.

Some of the main reasons why shareholder agreements are important include:

  1. They minimise the potential for shareholder disputes

Shareholder disputes can be costly, drawn out processes which can reduce the productivity of a company. They often require the assistance of a team of commercial lawyers to achieve resolution, and this can take a long time.

Shareholder agreements reduce the chance of shareholder disputes happening. They outline everything that the shareholder needs to know, and they provide a framework for the company to follow. While they won’t eliminate the risk of a dispute, shareholder agreements can greatly reduce it.

  1. Shareholder agreements can help raise finances

Having a high-quality shareholder agreement in place will put your company in a positive light when it comes to loans. Banks like lending money to businesses who know what they are doing and who can show that they have a clearly defined structure and reachable goals – shareholder agreements help show this.

  1. A shareholder agreement provides protection to the shareholders

Investing your money in a business can be a risky thing to do, especially if you don’t really know much about the company you are investing in. Fortunately, shareholder agreements provide some form of transparency and allow you to see exactly what you are putting your money into.

They also give you some form of protection in the event that the business mismanages their funds or uses your investment in a way they shouldn’t. In reality, a shareholder agreement is a way of making sure that your investment is going towards the things that you actually invested in.

  1. A shareholder agreement defines a shareholder’s responsibilities

It is often up to the shareholders to make the important decisions regarding a company’s future. The board of directors will see to the company’s day to day running, but shareholders are usually required to make big decisions together. A shareholder agreement outlines just how much responsibility the shareholder has.

Do you have a shareholder agreement?

If you are a company without a shareholder agreement, get one. If you are an investor who likes to invest in new companies, make sure that they have a shareholder agreement and make sure that you understand what it means. If you have any questions about shareholder agreements, consult a commercial lawyer.