A clear and fair shareholder agreement can help prevent unnecessary disputes from arising.

At its simplest, a shareholder agreement governs the rights, obligations, and responsibilities of the shareholders in a company. The content of the agreement can and should vary, depending on the needs and goals of the shareholders, and the nature of the company itself.

A well-written shareholder agreement should clearly set out what the dividend policy is and what input each of the shareholders will have in terms of their roles.

This should encompass voting rights and decision-making authority, which are ultimately the areas where disputes typically arise. A clear and fair agreement can help prevent unnecessary disputes from arising.

A properly prepared agreement which prevents disputes arising should be considered as a great help to avoid costly litigations.

Of course, the nature of shareholder agreements will differ, depending on whether it concerns a private limited company with many shareholders.

Certain key factors should always be considered when drafting shareholder agreements.

These include:

Ownership Structure

The agreement should reflect the ownership structure of the company, including the number and type of shares held by each shareholder.

Shareholder Rights And Obligations

The agreement should also outline the rights and obligations of each shareholder as regards voting rights and dividends. Where there are obligations to contribute additional capital to the company, these should be clearly set out. It should also address the transfer of shares, the process involved, and any restrictions, pre-emption rights, or rights of first refusal.

Management Structure

Bespoke agreements should reflect the specific management structure of the company, and the process for appointing and removing directors and officers, as well as the duties of the board of directors.

Dispute Resolution

The agreement should include provisions for resolving disputes among shareholders, such as mediation or arbitration clauses.

Confidentiality

It may be that a confidentiality clause is required to protect sensitive business information.

When drafting a shareholder agreement, it is essential to take all of the above points into consideration.