Article by listed Attorney: Nanika Prinsloo
The shareholder agreement is one of the most important documents the shareholders of a company must have. It is surprising how many people do not know that one should not be a co-shareholder of a company without a shareholder agreement. It is very beneficial for the shareholders and for the company that there is a shareholder agreement in place, signed by all the shareholders of the company.
There is no standard shareholder agreement. Each one is unique and must be drafted to suit the company. The shareholder agreement outlines what the shareholders have agreed upon. There are a myriad of events in the life of a company that will ensure that the company is run smoothly. If the relationship between shareholders is not clarified, it can cause endless problems and bring a company to a standstill or force it into liquidation.
What happens if a shareholder passes away or is declared insolvent
Buy and sell agreements – the terms relating to a buy and sell are usually contained in the shareholders’ agreements
What happens if a shareholder wants to leave - what procedure must be followed, how will the shareholder be compensated
What happens when the company is sold to a third party
Who are the officers and managers of the company
Who is/are the director(s)
How and when are shareholders’ meetings held
What constitutes a quorum
How many shares are issued to each shareholder, is the company withholding shares
There are many other areas that are covered by the shareholder agreement and it should be carefully drafted before it is signed. A shareholder agreement will ensure better business, because it will define the role of each shareholder, leaving no doubt or confusion or pre-empting potential problems before they occur.
The shareholder agreement helps the shareholders to clarify their roles, it usually highlights the commitment of each shareholder and it helps other shareholders to determine who they are dealing with.
The shareholder agreement should be signed before the company starts doing business, and not in retrospect a few years later when a problem occurs. It is usually too late by then.
Rather take the time, spend the money to have a shareholder agreement drafted so that the foundation of your business is solid and that there is a reference system for what to do in any circumstance.
This article written by Nanika Prinsloo of Prinsloo & Associates Attorneys and Conveyancers.