While there are no legal requirements to put a Shareholder Agreement in place, all companies that have two or more shareholders should have one. Shareholder Agreements minimise the possibility of disputes arising between shareholders as they provide procedures and a framework for resolving disagreements. For this reason, all shareholders in a medium-sized or small business should consider putting a Shareholder Agreement in place.
When Should a Shareholder Agreement Be Drawn Up?
It makes sense to draw up a Shareholder Agreement immediately upon formation of the company. However, it is possible to put a Shareholder Agreement in place any time and it is possible for any member to suggest one without having to take a vote. Nevertheless, every shareholder must sign the agreement agreeing to it if it is to be legally valid.
Key Times to Consider Reviewing the Shareholder Agreement or Drawing Up a New One
There are certain times in the life of any company when reviewing the existing Shareholder Agreement or drawing a new one up makes sense. These include when:
- A shareholder sells their shares or passes away.
- Shares are being issued to another shareholder.
- The holding of one shareholder is divided between several others.
- When a director-shareholder is appointed, resigns, or exits.
- Money is borrowed from one of the shareholders by the company.
- There is a change to the company’s business model, such as providing new services or products or expanding into new markets.
Essentially, whenever a company’s circumstances change, any existing Shareholder Agreement should be reviewed and updated as necessary, and if no Shareholder Agreement is yet in place, these situations represent the ideal time to consider implementing one.
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Disclaimer: This note comprises the view of the author at the time of writing. This note is not a substitute for legal advice. Information may be incorrect or out of date and may not constitute a definitive or complete statement of the law or the legal market in any area. This note is not intended to constitute advice in any specific situation. You should take legal advice in specific situations. All implied warranties and conditions are excluded, to the maximum extent permitted by law.
