It is therefore recommended that companies with more than one shareholder enter into a shareholders` agreement to give members, directors and the company clear guidance on what will happen in certain circumstances. Among the advantages of such an agreement are: these are just some of the important provisions that you should consider when negotiating the terms of a shareholder contract. As you can see, a shareholder contract could literally mean the difference between a surviving company or not. The following benefits benefit all parties to the shareholders` pact: As with any agreement, you can go to many different levels of detail and decide what is best for your situation. For example, a shareholder pact between two friends who are working together is very different from a joint venture agreement between two multinationals. These sound like fairly similar documents, and they can often overlap. A shareholders` pact is not a legal obligation and companies can only rely on their by-law. However, a separate shareholder pact has a number of advantages: a shareholder pact can protect both majority and minority shareholders if a majority wants to sell its shares. Under the Companies Act 2006, business leaders have broad powers to run a business, and all that is needed is a majority on the board of directors to approve most day-to-day decisions. However, the provisions of a shareholder pact, commonly referred to as “reserved business,” can list the company`s decisions, which must be approved by a certain percentage of shareholders (up to 100%). A shareholders` pact is an important and useful document because it provides a mechanism for defining the principles by which shareholders or partners operate in a joint venture. A dividend policy agreed in advance, included in the shareholder contract, will prevent this from happening.
While there are generally no disadvantages to a shareholder pact, some issues must be considered before entering into an agreement.