What are the Benefits of Shareholders Agreement in Business?

by eddy S. Seo Executive

Shareholders Agreement is an agreement among the shareholders or members of a company.

In this blog, we will discuss all aspects of Shareholders agreement including its benefits.

Let's start the journey:

What is the meaning of Shareholders Agreement?

A shareholders agreement is a legal contract agreed by all the shareholders of a company. Shareholders Agreement refers to an optional document which creates a contractual obligation between shareholders of a company. A shareholder agreement is not filed with any governing body. Shareholders Agreement establishes the rights of the majority as well as minority shareholders of the Corporation. Where a corporation has a few shareholders, then shareholder agreement is beneficial to that corporation.

Benefits of Shareholders Agreement

Shareholders Agreements are useful for companies with a relatively small number of shareholders. There are a number of benefits of a shareholders agreement. The benefits of a shareholders agreement include:

1) Confidentiality - A Shareholders agreement need not to be registered on the Companies Register, Unlike a company constitution which is view able by the public. The shareholder agreement is only seen between the shareholders in the company.

2) Pre-incorporation - Shareholders agreement can be entered into before the incorporation of a company. A shareholder agreement enables the shareholders to get a clear cut idea about what they are entering into and about the purpose of the company.

3) Flexibility - The Shareholders agreement can be adjusted to suit the needs of a corporation. Shareholders agreement set out how the company is structured, the day to day operations of the company etc. The agreement can be as simple or as detailed as the shareholders want.

4) Pre-Emptive Rights - Pre-emptive right is one of the benefits of a shareholder agreement. When a shareholder decides to sell his/her share then the remaining shareholders are entitled to the benefits of Pre-emptive rights. With pre-emptive rights, the remaining shareholders are offered the shares to purchase before their offering to a third party.

5) Resolution - In shareholder agreement, there is a provision to resolve any dispute and deadlock arises between shareholders. A shareholder agreement can provide options of resolution for the shareholders where a deadlock exists on a major company decision.

6) Protection - Shareholders agreement protects the investment of shareholders in a company. It also protects the position of minority shareholders by requiring unanimous approval for important company decisions.

7) Regulation of appointment and raising of capital - Shareholders can regulate the appointment and removal of directors by allowing a shareholder or a group of shareholders to appoint one or more directors. Shareholders agreement also can regulate the raising of capital to avoid the dilution of shareholdings.

Conclusion:

A shareholders agreement is a mechanism which saves the company from losses also protect the interest of the companies. Enterslice provides world's best quality service in a matter of Shareholders agreement. If you have any doubt about Shareholders agreement, then kindly contact the expert team of Enterslice.