Importance Of A Shareholder Agreement
Brandon Cullen – Commercial lawyer
A shareholder agreement is vital for every company in Albany with more than one investor. It is through the agreement that each stakeholder’s roles and responsibilities can be outlined. Outlined below are a few reasons why shareholder agreements are vital and how an Albany contract lawyer can help prevent some huge issues further down the track.
1. Most companies are set up in haste, which means responsibilities and agreements aren’t properly defined. Some companies even use articles to define each stakeholder’s role in the company. The main reason why you need a shareholder agreement is that, it helps you draw lines and even detail how company provisions will be shared among the stakeholders. It also contains limitations, roles, and protective clauses for each stakeholder.
2. Only registered company stakeholders have the clearance to view shareholder agreements. The public can view agreements published in articles, which isn’t recommended for such documents should be restricted for private viewing only.
3. Company law, which governs companies in both statutes and case law may not apply to stakeholders. Shareholder agreements are therefore important as they help govern the company within/outside company law. This makes shareholders abide by the company’s set laws and stipulations.
4. Agreements set precedence over decision-making roles. Most delegate decision making to a board of directors, who have the power to make critical decisions on the company management. Other key roles assigned to these directors include company ownership, defining powers as well as protecting the company. The agreement also provides clear jurisdictions and processes involved in decision-making and provision of powers especially where every stakeholder is involved. This also helps protect involved parties in running the company regardless of one’s position.
5. Shareholder agreements help govern and limit each stakeholders actions especially where the company’s future is at stake. When there is a crisis in the company, and partners have different opinions as per what should be done, the agreements or memorandum of understanding (MOU) limits them from taking steps that could harm the company’s future. The MOU helps company owners settle disputes and other disagreements amicably without risking the company.
6. A shareholder agreement gives stakeholders the capacity to raise money for the company’s financial need. This helps stabilise the company’s operation, as well as increase the chances of potential investors investing in the company. The agreement also provides a clause that allows stakeholders to raise money for other institutions and financial entities.
7. Through a shareholder agreement, each shareholder is safeguarded financially. Should a shareholder pass on, the agreement allows a next of kin to take this person’s position, and that his or her family benefits from the company’s profits. An individual’s action within the company operations is also protected under the shareholder agreement. The main purpose of these agreements here is to protect the company against actions that could see to its demise.
8. Minority and majority shareholder’s interests are all protected under the investor’s agreements. This means all the shareholders have an equal say in regards to the company’s operation and future. This is unlike companies that operate under the article of association that favours the majority vote especially where amendments are needed. A shareholder agreement ensures that all shareholder interests are protected regardless of their status. This enables minority shareholders have a say on the company’s mode of operation and decision-making. This means every person’s actions and views are considered when making amendments.
The factors outlined above a just a few of the many aspects and benefits that come with having a shareholder agreement in a company. The best thing about these agreements is that, they all start as a draft, which are amended from time to time as needs arise.
Another fact about shareholder agreements is that, they are legally binding even when in draft mode. This makes it a foolproof agreement since all shareholders have to take part if amendments are needed. Since every shareholder is required to sign this document, it would be advisable for you, as a partner, have a legal representative advice you on the same before signing it. The lawyer should be able to detect clauses that do not address your issues and are too restrictive in your case.
Clearly it is extremely important to have sound legal advice when drawing up any shareholder agreement so that it can stand up to legal scrutiny should the need arise. Further it must fairly represent each shareholder and their interests. You need a law firm that has the relevant knowledge for this aspect of commercial law. For convenience it is also probably a good idea to work with a local Albany commercial lawyer or a larger North Shore law firm such as McVeagh Fleming Partners in Albany.
You can get more details by visiting their website here.
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