WHY YOUR COMPANY NEEDS A SHAREHOLDERS’ AGREEMENT

Shareholder Agreement

The need for a company to have a shareholders’ agreement is dependent on different considerations. Companies that have only one shareholder are unlikely to see the value in having a shareholders’ agreement.

On the other hand, if companies are in the growth phase, and looking to get investors on board, it would be advisable to implement a shareholders’ agreement.

Investors are taking a risk on their investment as they may not recover their investment therefore, they often require the shareholders to agree to certain provisions to be put in place to protect their position by executing a shareholders‘ agreement.

If communication breaks down amongst shareholders, a dispute resolution clause, can help the parties find a way to move forward. Such clauses set out the procedure for the parties to follow to resolve the issue and covers the way forward if a resolution is not reached.

Shareholder agreements make sure that the operations of a company and the responsibilities of the shareholders are properly articulated and that there is transparency as to what cant and can be done.

The most vital benefit of having a shareholders’ agreement is that it will reduce the potential for costly disputes between shareholders and support the company to be run efficiently and profitably.

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