A Shareholders’ Agreement is an INSANELY important legal document in the corporate business sphere. We like to think of them as the prenup of the corporate world! Instead of them being like a document in place for people who are about to get married, it’s for those about to go into business together (kind of like a business marriage?!).
So, what is a Shareholders’ Agreement and why is it important?
A Shareholders’ Agreement (or ‘SHA’ for short) is a document drafted for some or all of the shareholders in a company (clue in the name, right?). Just like a Prenuptial Agreement, it’s a private contract that regulates the relationship between shareholders.
A prenup lists all individually and jointly owned assets (and debts), outlining how things will be divided, should the relationship end in divorce. Very similarly, a SHA is the document to refer to should a shareholder relationship turn sour (although that isn’t its only purpose).
A SHA is how the relationship between shareholders is documented. If you listen to one piece of advice from us here at Jamieson Law, it’s to ALWAYS get it in writing. Don’t rely on trust and hope that everything will be roses and sunshine…hopefully the latter is the case, but you truly never know what can happen in a business relationship, even if they’re your best mate (if only we all had a crystal ball that could tell us).
What kind of matters can a SHA cover?
· How shares can be transferred
· How dividends are payable
· Non-compete restrictions (would you want a shareholder to leave, then join / set up a competitive business? Probably not)
· Exit plans – whether things end amicably or not
· The personal rights and obligations of the shareholders
· Protection for minority and majority shareholders
· Any restrictions
· The decision-making process
· Dispute resolution
At the end of the day, going into business with someone is super exciting. You’ll probably want to hit the ground running and get into all of the ‘fun’ stuff, which can often lead to the nitty gritty being left out! Disagreements often occur in relationships like this, the SHA will always be the first point of reference in any tricky situation.
Just recently, a certain celebrity entered a bit of drama with his music producer and business partner (we know, slightly different business relationship, but the point still stands). ‘Akon,’ noughties music legend who gave us some great tunes, is having to deal with threats from his business partner regarding freezing all of his assets…now this would be catastrophic considering the extent of the assets he likely holds and owns. Let’s hope a document is in place here for him to refer back to, otherwise this could be a very tricky court battle.
Moral of the story here? Get it on paper. Don’t rely on trust. If you’re about to enter a relationship with shareholders, get a SHA in place. If you’ve already entered into this type of business relationship, get one in place while you’re all still friends…now of course we hope that the relationship will never turn bad, but you really do never know.
Here at Jamieson Law, we specialise in drafting Shareholders’ Agreements for all types of businesses, ensuring they protect you and are written in plain English. If you’d like to chat about drafting your bespoke SHA, get in touch!
