When you decide to form your own company, it is advisable for all of the shareholders to prepare a formal shareholders' agreement. The reason for this is that the company has its own legal identity, which is distinct and separate from the shareholders. A formal agreement will therefore confirm the way the company is to be managed, and the individual shareholders' rights and responsibilities towards the company.
Where a company does not have a formal agreement in place between the shareholders, there is potential for disputes to arise at critical points in the future. The result can often be lengthy and expensive court action to resolve the dispute and make a company decision. Having a properly drafted shareholders' agreement can limit and often prevent such disputes from arising, by planning for these eventualities and ensuring an agreement has already been reached.
Your shareholders' agreement will therefore deal with the rights, obligations and responsibilities of each of the shareholders, and typically includes most or all of the following:
*Shareholder meetings
*The management of the company
*The appointment, remuneration and removal of company directors
*Shareholder voting rights
*How shareholder decisions are taken
*The company policy on dividends
*The duties of confidentiality
*Any requirements for sale or transfer of shares
*Procedure for company winding up or termination
The shareholders' agreement ensures that the majority shareholders are able to exercise their overall control of the company, but also allows for those with minority shareholdings to have a say and make contributions to the way the company is run. Also your company articles will be a matter of public record, but the terms of your shareholders agreement will be confidential.
The type of shareholders' agreement required will always depend on the size and nature of your company. There is little point in having a long and wide ranging agreement if your company is only just starting. A succinct, concise agreement can be prepared that includes all of the main provisions. This can then up updated over time to reflect changes in your company and its growth.
Running a company can be difficult enough and the last thing you need is a dispute between the shareholders. This will undoubtedly have an effect on the company's productivity and profitability. Ensuring that you have an effective shareholders' agreement in place minimises the risk of disagreement and ensures the shareholders' rights and obligations are clear.
It is a vitally important document, and regardless of the size of company, shareholders should ensure they have such an agreement in place.
Are you are looking for expert Hull commercial solicitors? Talk to Solicitors in Hull Myer Wolff. Ashley Easterbrook is a partner at the firm.
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