A Shareholders Agreement (SHA) is a binding contract between the shareholders of a company. This agreement not only governs the rights and obligations of each shareholder but also outlines dividend preferences, voting rights, board structure, and the procedures for selling shares. It defines how shareholders interact with each other and their relationships within the company.
**When are Shareholders Agreements Executed?**
Shareholders agreements are executed in two primary scenarios. The first is at the inception of a company, signed and executed between the founders. The second scenario is when the company receives external professional investment. The purpose of a shareholders agreement is to protect the interests of all shareholders while clearly defining their roles. It ensures shareholders are treated fairly and allows them to make decisions regarding potential future shareholders, thus providing safeguards for minority shareholders.
**Common Characteristics of Shareholders Agreements**
The content of shareholders agreements can vary based on the specific understanding and requirements of the shareholders. However, they generally include the following characteristics:
– **Rights and Obligations**: Defines the rights and responsibilities of each shareholder.
– **Dividend Preferences**: Specifies how dividends will be distributed among shareholders.
– **Voting Rights**: Outlines the voting rights of each shareholder.
– **Board Structure**: Details the structure of the board of directors and the manner of appointing board members.
– **Share Transfer**: Establishes the procedures for selling shares and transferring ownership.
– **Shareholder Relations**: Regulates how shareholders will interact with each other and manage their relationships within the company.
By setting these terms, a shareholders agreement instills confidence among shareholders that they will be treated fairly and equitably, protecting their interests and ensuring smooth governance within the company.