A shareholders Agreement is a Contract between the Shareholders in a Company, it is a private document that does not need to be filed at the Companies registry. It basically governs the relationship between shareholders, however is not a legal requirement to have one.
A well drafted shareholders' agreement can act as a safeguard to Shareholders.
Here are the reasons why a Company should have a Shareholders Agreement:
1. Cases of fallout
This is the most important reason why a Company should have a Shareholders' Agreement. Shareholders of a Company do fall out and disagree on a number of issues regarding the running of the business of the Company, one may not foresee this during the formation of a Company. Having a shareholders agreement minimizes any potential for business disputes between owners and provides a framework for conflict resolution.
2. Signifies Company stability
A shareholders Agreement signifies the stability of a Company to potential partners to the Company, and hence can help in raising finance from Banks or Creditors.
3. Protection of Minority Shareholders
A shareholders Agreement helps to protect the interest of minority shareholders in a Company and their investment.It provides better protection to shareholders as it can only be amended with the Agreement of all shareholders.
4. Shareholders approval
A shareholders agreement can help in safeguarding the interests of shareholders by stipulating that certain decisions by the Board of Directors can only be made with the approval of shareholders. This helps in safeguarding the interests of Shareholders and helps in prevention of board mismanagement.
5. Share Transfer Control
A Shareholders Agreement can help in control of transfer of shares by stipulating the right of first refusal.
The Shareholders Agreement should contain the following clauses:
- Running of the company's day- to-day affairs, procedure for appointing, removing and paying directors; area of business of operation by the company.
- Transfer of shares, how the shareholders can be able to transfer shares.
- Protection of Minority Shareholders clause.
- Dividends, how and when they should be paid , percentages.
- Dispute/Conflict resolution clause.
- Restrictions clause, to help in protection of the business.
- Duties and responsibilities of shareholders.
- Capital contributions clause.
These are just a few of the reasons why a Shareholders’ Agreement is important. If you wish to discuss a Shareholders’ Agreement for your company, please do not hesitate to contact us on legalserviceskenya@gmail.com.
