Shareholder Agreement

Shareholders Agreement is a contract between the owners /shareholders of a firm, defining their mutual obligations, privileges, protections, and rights, and usually it comprises of the firm’s articles of association or bylaws. The shareholders’ agreement is intended to make sure that shareholders are treated fairly and that their rights are protected.

A shareholders’ agreement basically is an arrangement among a company’s shareholders describing how the company should be operated and the shareholders’ rights and obligations are also described in it. It also includes information on the regulation of the shareholders’ relationship, the management of the company, ownership of shares and privileges and protection of shareholders. For any information about Non-Disclosure Agreement, Contact us.

Reasons for Shareholders Agreement

Basic functions of Shareholders agreement are:

  • setting out the shareholders’ rights and obligations.
  • regulating the sale of shares in the company
  • describing how the company is going to be run
  • providing an element of protection for minority shareholders and the company
  • defining how important decisions are to be made

Essentials of Shareholders Agreement

  • The agreement works in conjunction with a company’s articles of association
  • A shareholders’ agreement can contain any arrangement agreed between the shareholders and can vary what would otherwise be the legal position without it.
  • The shareholders agreement will remain private and confidential and will not be open to view by others such as creditors or non-member employees
  • The existence of a shareholder agreement can assist in raising finance from banks or creditors and also demonstrates the stability of the business to other potential partners.


FAQs :


1. What is a shareholders agreement?

A shareholders' agreement is an agreement entered into between all or some of the shareholders in a company.

2. Why do you need a shareholders agreement?

A shareholders' agreement can provide protection for minority shareholders by reserving certain decisions, such as the ability for the company to issue further shares, which can only be made with the unanimous consent of all the shareholders.

3. When should a shareholder agreement be made or signed?

A Shareholder Agreement should be prepared by time the first share has been issued. As for being signed, the agreement should be signed before any of the shares are transferred. If not, this might lead to many problems in the future.

4. What can be found inside a Shareholder agreement?

a. Set out the shareholders’ rights and obligations.

b. Regulate the sale of shares.

c. Describe how the company is going to be run.

d. Provide an element of protection for the minority shareholders and the company.

5. Is a shareholders agreement legally binding?

The provisions of the agreement will be legally binding and enforceable by all parties to it. Purpose The primary purpose of a shareholders' agreement is to record the intention of the parties as regards the business.

6. What is the purpose of a shareholder?

Its purpose is to protect the shareholders' investment in the company, to establish a fair relationship between the shareholders and govern how the company is run.

7. How can the shareholders agreement be varied?

You can vary the shareholders agreement by a document signed by all the parties.

8. When should a shareholder agreement be made or signed?

A Shareholder Agreement should be prepared by time the first share has been issued. As for being signed, the agreement should be signed before any of the shares are transferred. If not, this might lead to many problems in the future.