Shareholders’ Agreement – Why you need one

Where a company has more than one shareholder, a shareholder agreement can be a very important tool to avoid potential long-term issues among the parties. A shareholder agreement can work to set expectations of the parties with respect to the day-to-day functioning of a company and outline their rights relative to their shares.

Shareholder agreements will typically address how the company’s affairs are to be conducted and who will make the major decisions for a company. Shareholder agreements will also detail shareholder loans and other matters addressing how the operations of the company will be financed. Restrictions around share transfers and shareholder remedies available on default will also be highlighted. Further, there will often be a clause detailing the steps to be taken upon the death of a shareholder.

In its attempt to frame the relationship among shareholders, the shareholder agreement can encourage discussion of the goals and objectives for a company that may have otherwise not been addressed. Although it may seem easier to forego a shareholder agreement, taking the time to draft one can prevent complications in the future.