The importance of having a well-prepared shareholder agreement can’t be overstated. In practice, I have come across many situations where my client and another investor have set up a business only to find that after some months one of the investor ceases to participate and then the non-interested investor seeks to claim a return on their investment.
In the absence of a good shareholder agreement, there is no detail as to how future profits are to be divided and how profits and income in relation to the company in the future to be dealt with. This can create inevitable uncertainty and possible litigation and the situation is therefore to be avoided at all costs.
A well drafted shareholder’s agreement will also govern issues in relation to share sale, deal with control and obligations in relation to directorships and obligations in relation to the company.
There should also be provisions in the shareholder’s agreement specifying that issues requiring shareholders consent will relate to change of control of the company, the increase or reduction of share capital, alteration of the business of the company and controlling interests, whether the company should expand onto the stock exchange.
Accordingly, by requiring shareholder consent there is an inbuilt mechanism for control amongst the shareholders so that unfair advantage cannot be taken against by one shareholder against the other.
In the absence of an agreement and if Court proceedings were brought to determine rights in relation to a company we would be left in an uncertain position of considering correspondence and documentation to try and draw from that what the parties rights and responsibilities are and this creates considerable uncertainty.
Furthermore, Court proceedings are expensive and there would be no guarantee of success in the absence of a well drafted agreement. Often when litigation is contemplated, the business relationship is at an end and considerable skill is needed to achieve a settlement in those circumstances.
Saul Marine & Co can assist both in preparation of a shareholder agreement and in the event that litigation is inevitable assist with representation at Court and possible settlement. For further information or help in either drafting agreements or your position if there is a dispute just click here >>>
