Shareholder Agreements
A shareholder’s agreement is a legally binding contract between the shareholders of a company that establishes their rights, responsibilities, and obligations to each other and to the company. Private companies with multiple shareholders typically use these agreements to align on company management and direction. It is important to note that a shareholder agreement is separate from the company’s constitution, which sets out the general rules for its operation.
Why is it important?
A shareholders' agreement reduces misunderstandings by addressing important matters like exit strategies and funding at the relationship's outset.
Examples of the contents of a shareholder’s agreement
Shareholders’ agreements typically outline:
The purpose of the company
How directors are appointed and removed.
Dividend policy (frequency and percentage of profits for distribution)
Board of Directors (composition, number of directors, process for appointment and removal)
Actions requiring supermajority approval (such as changing business nature, major transactions, financing, or significant capital expenditure).
How the company should be funded.
Decision-making process
Shareholder rights
The requirements in relation to the company to hold insurances over the lives of the directors.
How the shares are to be valued, the procedure around the transfer of shares, and how shares will be valued when sold.
Procedures for addressing shareholder non-performance and dispute resolution
Termination (process to terminate shareholders' agreement)
Dispute Resolution
Recommendations
shareholders agreement, tailored to your specific business needs, helps address potential issues proactively. It enables shareholders to address potentially significant issues before they arise. It helps to establish clear guidelines for the governance and management of a company and protects the interests of all shareholders. It can also help resolve disputes and clarify key issues, such as the sale or transfer of shares and the distribution of profits.
Contact Us
Contact us to discuss on 07 827 9130. Our office is in Cambridge, NZ, but distance is no problem. We have many international and national clients.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
