What Is Shareholders’ Agreement?

When any individual or legal entity (investors) invests money in any company in order to hold certain percent of ownership, the ownership given to them is in the form of shares. This funding/ financing requires the founder(s) of the start-up to draft a detailed shareholders agreement to regulate the changes in the company’s structure.

The shares issued in favor of them will be regulated by this agreement and the investors are known as shareholders of that company. Let’s dive into the details!

What is a shareholders’ agreement?

As the name itself specifies, shareholders agreement speaks about the arrangement of the shareholders of the company. It is an agreement which mentions the shareholder’s rights and duties, among other important aspects. This agreement looks upon for the interest of company as well as of the shareholders. This agreement also helps the shareholders to make fair decision in regards to trading of the shares of the company. The bottom line is that it gives a fair picture of the rights and duties of the shareholders and their functioning in the company. It is also known as shareowners’ agreement.

Importance of shareholders agreement

This agreement is executed in order to have a smooth regulation between the company and shareholders. It protects the rights of majority as well as minority shareholders of the company. In absence or negligence of proper drafting of shareowners agreement, the chances of disputes are high and there will be no uniform regulation of the rights and duties of the shareholders of the company. In such cases, it becomes difficult to come to an amicable solution which is not good for the company. At the time of startup funding also, it is always advisable to draft a thoroughly thought-out startup shareholder agreement as you bring new investors on-board.

Benefits offered by the agreement

There are a lot of benefits that come with a shareowners’ agreement when drafted properly by an experienced professional after consultation with every important party in the agreement. Some of the major benefits include:

1.      Stability

The agreement is drafted in concurrence with the Articles of Association (AOA) of the company. This helps in maintaining a uniform structure as all the agreements will following a proper work flow and it will be easy to understand the management of the company. This helps to have a stability in the company and provides a smooth working environment.

2.      Smooth coordination

Having an agreement with the right clauses helps to have smooth and proper coordination between the minor and major shareholders and also with the company. All the rights and duties are properly mentioned in the agreement which gives a clear division to each shareholder and avoid the overlapping and abuse of power in the company.

3.      Exit of investors

All the shares transfer shall be regulated with the help of this agreement. This agreement shall include the option of exit of investors or shareholders by selling their shares through the pre-defined process in the agreement. This helps the shareholders to have a smooth exit from the company without any hassle and sell the shares. A buyout agreement or buy-sell agreement will help to have a proper exit procedure from the company.

4.      Attraction for investors

If a company has a shareholders agreement, it leads to a sense of trust of trust for the investors who are looking to invest in the company. It majorly helps them understand the trading of shares in the company. Furthermore, if any dispute is raised, it helps in finding an amicable solution.

Major contents of the agreement

There are various important key clauses that need to be added in the shareowners’ agreement which will protect all the rights of major and minor shareholders of the company. You can find those key clauses to include in your shareholders agreement in our blog.

Conclusion

With this clarity and the clarity of your vision for your business, you’re ready to go ahead with this new phase of investment in your business. You will need professional support to draft shareholders agreement. Just drop your details and experts from LegalWiz.in will connect with you soon!

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