The Shareholders’ Agreement is one of the most important documents (if not the most important) for any business with more than one shareholder. Here’s why.

In our last article, we discussed how to avoid conflicts between partners and highlighted how this agreement can be decisive. Now, let’s explore other ways in which this type of agreement can be used.

It’s very likely that your articles of association will not be sufficient when issues arise in your business or when you seek to make changes in its structure.

Still, it’s common for business owners to ask why it’s necessary to have a Shareholders’ Agreement.

Let’s look at some compelling reasons.

A Shareholders’ Agreement Is Private

First, it’s important to note that the articles of association are a public document. Once registered with the Board of Trade, anyone who pays a small fee can access this document (in some states, no fee is required to obtain a copy).

Therefore, it’s certainly not the best place to include strategic information about your business.

This is the first reason to create a Shareholders’ Agreement: to protect the privacy of information.

The Shareholders’ Agreement is a private document, kept on file at the company’s headquarters. This means that only those who are part of the agreement will have access to it.

Can you imagine making public how much each shareholder is entitled to in profits? Or disclosing your strategy for admitting new partners, how the company resolves internal disputes, etc.?

With this first idea in mind, you can already imagine how many important matters can be covered in this agreement, right?

Functionality of a Shareholders’ Agreement

This is where the role of a Shareholders’ Agreement comes in. Its purpose is to align business strategies in a manner that is strictly internal to the company, ensuring predictability in decision-making for day-to-day operations.

Stay Tuned for More

Keep following us, as we’ll be sharing more information about this crucial document in upcoming articles.

Seek specialised advice and bring security and predictability to your business.