What is a shareholders’ agreement?

A shareholders’ agreement is an agreement between shareholders and sometimes the company. The basic concept of a shareholders’ agreement is to set out certain aspects of how the company is to be governed and operated and to provide for respective rights and obligations of shareholders as between each other. The principal advantage of entering a shareholders’ agreement is legal certainty for the parties. If at some point in the future a dispute arises between the shareholders, a well drafted shareholders agreement will set out how such a dispute is to be dealt with. To protect minority shareholders the agreement will generally cover a wide range of topics which we will look at in more detail below.

Matters to be dealt with by a shareholders’ agreement could alternatively be inserted in the company constitution, however this document will be in the public domain through the CRO. For this reason, a shareholders’ agreement is often preferred as it keeps commercially sensitive and other information out of the public domain. Furthermore, a constitution will only be binding on a shareholder in their capacity as a shareholder. A shareholders’ agreement allows for the imposition of rights and obligations on the shareholders. This can be particularly important in smaller companies where shareholders may be directly involved in the running of the business.