Since the main objective of a shareholders` agreement is to establish a regulatory framework for the internal management of the company and to address, to the extent possible, prospectively how potentially divisive issues are handled, it is often found that shareholder agreements sometimes include dispute resolution mechanisms. Such mechanisms may include an escalation procedure in which disputes between shareholders against a non-executive chairman (if independent of the matter) or another third party may escalate and the parties may agree that that third party`s decision in the matter is final and binding on them. Another variant is to give a decisive voice to the president of the company in areas where there is a tie vote, but this is often not commercially acceptable if the president is not truly independent, otherwise such a voting agreement could transfer control of either political group within the company. Entrepreneurs are often so busy running a business that they overlook a decisive step in the process of safeguarding and protecting the future success of their business and interests – a shareholders` agreement or partnership agreement. It is the key document that establishes the relationship between the shareholders (owners) and directors of the company and to which they relate when making important decisions about the company. Ideally, these agreements are best prepared as a “honeymoon” at the beginning of the activity, like a “business pre-nup”. At this early stage, it is possible to conduct constructive and practical discussions and reach a consensus on how to manage the business, while all stakeholders are motivated and collegial and differences or disputes about the day-to-day operation of the company have not yet broken out. It is important that the clauses relating to the sale of shares in the company are carefully elaborated or reviewed. Clauses that many companies include in the agreement include the right of pre-emption, Tag Along and Drag Along clauses. Please call us if you have a question or if your shareholders` agreement needs to be verified. We are happy to create a scope and an estimate for you. The critical need for such agreements to protect your interests is very obvious if: It is sometimes said that one could devise a statute to deal with all the issues that one would typically see in a shareholders` agreement. This is true, but there are some important reasons why shareholders more often choose to settle their mutual relations as shareholders through a shareholders` agreement and not just the articles of association.
These reasons are discussed in the next section. A shareholder`s contract is essentially a marriage contract of a company. It defines the rights and obligations of shareholders or partners who belong to a company. It is not mandatory, but it is advisable to have one before you start a business with another person in order to avoid litigation that could cost you tens of thousands of dollars or more….