Provisions and Benefits of a Shareholders' Agreement

It is a good thing if you have sole proprietorship on your business. You are the only person to make decisions on the direction of your enterprise. But in the situation where you own the business together with other individuals, you need to have a clear sense of agreement. This is where a shareholders' agreement comes in.

So what is a shareholders' agreement?

It is a written agreement amongst the shareholders of a Company. The shareholder's agreement stays private within the owners of the company because it there is no necessity to register it at Companies House.

Know what the Shareholders' Agreement provides:

* The agreement lays out a controlled structure for all shareholders to ensure that their rights are protected and their obligations and responsibilities in the Company are clearly defined.

* Regulations on how an individual can join the company as a new shareholder.

* Stipulating the process of buying and selling shares, the individuals who are allowed to trade them, and the time when they can be traded.

* Lays out the decision to new shares issued by the Company.

* Shareholding value control when business is being sold. Provides resolutions should disputes about such arise during the process.

* A clear stipulation on requirement of shareholders agreement in certain decisions that affects managing the Company is provided.

* The powers of non-owner Company directors are identified. Process of use of powers for the benefit of the shareholders and the Company is defined.

* Stipulations with regards to a shareholders incapability to perform his/her function due to health issues if the Company is owner-managed.

* Insurance that the shareholders touches base with the business. Even without necessary government, the agreement regulates the administrative process of the Company rendering it efficient.

* If no resolution is settled on how to operate the business, the agreement provides a process to resolve such issue.

Know when to set up a Shareholders' Agreement

It may seem to people who are starting with a business investment with other folks that the shareholders' agreement is not an urgent matter. This is especially true with off-the-shelf businesses. It is but a huge risk for both parties to set aside drawing of such agreement especially if the business is already making profits. There are business hurdles you have to face when you are in operation and you have to process, terms, and conditions to refer to. A partner might want to sell their share and some other might fall out and you won't have a resolution for situations like these.

There is no specific time when the shareholders' agreement is drawn. It can be constructed anytime during the development of the Company. It is advisable however, that it is drawn at the earliest time you decide to put up a business partnership with other investors. Alterations can be made to it along the way, provided that all shareholders agree to such changes before it is put into writing and signed.

Should you wish to draw up a Shareholders' Agreement that is correct and precise, it is wise to seek the counsel of a business law solicitor so that all your requirements will be laid down properly. It is a necessary benefit to safeguard all involved parties.

Charlotte Greenwood is an established business professional and author. If you are in the process of going into a corporation, it is wise to consult a legal professional regarding a shareholders' agreement. You can look into a shareholders' agreement template so you can have a reference to model your own contract.