Shareholders' Agreement: The Basics

By: Graff
Incorporation and formation of a company is not an easy task. It involves a number of legal procedures to be fulfilled and a voluminous amount of paperwork to be prepared and submitted to the concerned authorities. Issues regarding the ownership and the setting up of the core management have to be decided upon. The business operations of the company cannot commence, unless these and all other issues are sorted out and streamlined. The shareholders' agreement is an important component of the company formation process.

Shareholders are people who share the company's ownership right, though the percentage of ownership may vary. The constitutional documents of the company regulates the relationship of the shareholders amongst themselves and with the company. In case of a joint venture or small number of shareholders, the constitutional documents are to be accompanied by the shareholders' agreement.

Basically a shareholders' agreement defines the way in which the company would be governed and managed. It outlines the process using which the managers, directors and other decision makers of the company would be appointed, and whether the shareholders will play an active or a passive role in the day-to-day administration of the company.

It also talks about future disagreements (if any) amongst the shareholders and the way in which it should be dealt. Issues like shareholders wanting to sell his shares and opting out or even the company forcing a shareholder to opt out by buying is shares are also mentioned in the shareholder agreement.

This is just a rough sketch of what a shareholders' agreement might contain. The nature of the agreement might differ from company to company and from different types of companies. The agreement of a marketing and advertising concern, will differ from that of a high tech IT company. The agreement is like a rule book and is prepared in consultation with all shareholders who have to abide by it too.
Share this article :

Most Read
• Creating A Prenuptial Agreement, by Jeffrey Broobin
Top Searches on Corporate Matters
•  Small Business Online Advertising•  Marketing Operations Management