Definition of a Shareholder's Agreement
Shareholders, or stockholders as they are sometimes called, are the owners of a company. Each one owns a certain number of shares of the business and may or may not have responsibilities within the company. If you are starting a company with other people, it is a good idea to have a shareholder's agreement.
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Definition
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A shareholder's agreement is a written document that defines what the shareholder's of a company expect of one another and may include further information about future eventualities or particulars about the operation of the business. A shareholder's agreement can vary depending on the circumstances, and one is usually only created if there are a small number of shareholders.
Function
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A shareholder's agreement is used to set down in writing what the shareholder's agree to in case there is a disagreement later on. It can do things like define who can be on the board of directors, what to do if a shareholder leaves the company, how much shares are worth and other things. The shareholder's agreement is a legal document that can be referred to later if there are questions about those kind of issues.
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Features
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A shareholder's agreement starts with a preamble that says who is a party to the agreement. Then there is a short section about what the purpose of the agreement is. Following that are sections that detail the things being agreed to in the agreement. The number and type of sections vary depending on what you want the agreement to do, but usually includes provisions for how a shareholder may be bought out if they want to leave the agreement.
Benefits
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The main benefit of a shareholder's agreement is that it exists as a legal document that can be used if any of the issues outlined in it arise. If you have an explanation of what to do if a shareholder dies in the agreement, then there is no question of what will happen if such an unhappy event occurs.
Misconceptions
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A shareholder's agreement is made in addition to the incorporation and constitutional documents that set up a company, not in the place of such documents. Usually a shareholder's agreement is made just to clear up any questions or prepare for future eventualities between the people who own or are starting a company.
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