Estate Planning

Shareholders Agreement

Essentially, a shareholders agreement is an example of a contract that can be made between either all or even just some of a company’s membership (i.e. the company’s shareholders). If you are about to create a Limited Company with one or more directors IWC can assist by creating a Shareholders agreement.

Shareholders Agreement

What is a Shareholders Agreement

A shareholders agreement provides for the establishment of areas of agreement between those that are involved in a particular company. However, it is also to be noted that even those people that are not shareholders in the company in question can be party to a shareholders’ agreement where it is considered to be appropriate.

There is also a need to recognise the fact that it is possible to make a shareholders agreement at any time during the course of the lifetime of a given company. Nevertheless, it has generally come to be recognised that a shareholders agreement is typically established when a new company is formed in any given industry.

Why create a Shareholders Agreement

Shareholder agreements are so popular among a given company’s membership is despite the fact that they are already bound by another contract: the Articles of Association.

The reason why is that, unlike a shareholders agreement, a given company’s Articles of Association only provide for the formation of binding contract with regard to the rights of its membership and are thus ineffective with regard to the recognition of the rights of non-members.

Therefore, a shareholders agreement is considered to be both particularly useful and effective if a company’s membership want to agree upon a particular issue that is deemed to be unrelated to the recognition of their membership rights.

Shareholders Agreement
In addition, in view of the fact that a given company’s Articles of Association are an example of a public inspection at the Companies Registry, a shareholders’ agreement is also considered to be pertinent where a company’s membership want to keep their agreement secret. The reason for this is that it has been found that a shareholders’ agreement is a further example of a private contract between the parties that the general public has no right to see under the law as it currently stands.

Shareholders agreement for Limited Company

Moreover, since it is possible for a company’s Articles of Association to be altered at any time by special resolution of their membership (i.e. 75% of the votes of those that are present at a general meeting of that company). However, just like any other form of contractual agreement, a shareholders agreement cannot be amended except with the parties to the agreement’s unanimous consent to this effect. Therefore, this effectively means that any attempted variation of a shareholders’ agreement will then serve to provide a remedy for a breach of contract where a variation of a company’s Articles of Association would not.

Shareholders Agreement

Creating a Shareholders Agreement

On this basis, it is to be noted that a shareholders agreement typically includes a series of mutual promises by the parties to the agreement with a view to providing the necessary consideration for the contract in the in the circumstances in the form of –

(a) How the company is to be managed;

(b) The division of power between the parties to the agreement;

(c) The extent of the parties to the agreement’s influence over the management of the company;

(d) The terms for transferring shares to a third party;

(e) How to deal with disputes between the parties to the agreement;

(f) When the company will terminate; and

(g) What will happen in the event of one of the parties to the agreement’s death.

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