Shareholders' Agreements
Getting Started
Shareholders' Agreements
If two or more people decide to go into business together, trading through a limited liability company, the same issues and concerns affecting an ordinary partnership can also apply to the business. It is vital to consider these issues at the outset. What happens when the directors of a company disagree over the future strategy for the company? What happens if one of the shareholders wants to sell their interest in the company and/or wishes to introduce another third party to the business?
These issues might be addressed by the constitutional documents of the company, the Memorandum and Articles of Association. However, the company’s Memorandum and Articles of Association are public documents. In order to deal with the internal workings of the company and relations between its shareholders, it is often prudent to have a specific private agreement between the shareholders. This type of agreement will set out how they will run the company and what powers each shareholder will have.
In most small private companies the shareholders are often the same people as the directors. A director has authority to bind a company to any legal contract. In order to prevent a director acting alone, for example in engaging employees or buying premises without agreement, a shareholders' agreement will help. Borneos has lawyers who specialise in drafting these documents for small private companies as well as large complex international joint ventures.
Having a shareholders' agreement in place at the outset can give you peace of mind and protection for your investment. Such an agreement can be drafted to strengthen minority shareholders' positions in a company and it is often as important an investment as is the investment in the company itself.
Please click on the link for our update on the Companies Act 2006 and how it could affect your business.
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