The purpose of shareholders’ agreements is to prevent or resolve these problems amicably. A shareholder agreement is a contract signed by the company’s investors. The purpose of this agreement is to structure the relationship between the shareholders of the company, regardless of how the contract is drafted for diverse organisations.
Here are a few advantages of shareholders’ agreements:
The stability of
Shareholders’ agreements are often written in accordance with a company’s bylaws and articles of incorporation. As a result, these agreements define not only the structure and norms of the shareholders, but also the key management, board and operations of the company. As a result, the organization has an additional means of relying on.
In contrast to articles of incorporation, these agreements are confidential and inaccessible to creditors or non-members. As a result, they also protect the information of your company.
Resolution of disputes
A well-drafted shareholders’ agreement provides the shareholders with an optimal method for resolving conflicts. It is estimated that 62% of all start-ups in India fail due to disagreements between founders or partners.
Having a lawyer draft your shareholders’ agreements can help you mitigate a dispute resolution strategy that is specific to your company. Additionally, your corporate lawyer can assist you in resolving disputes through Alternate Dispute Resolution.
Shareholder agreements have this advantage. In your corporation, these agreements help maintain accord between the majority shareholders and the minority shareholders. Furthermore, they ensure that majority investors do not abuse their power by defining the key issues in the contract that require unanimous approval.
Listed in these agreements are the relationships between shareholders and the procedures for adding or removing shareholders. As a result, key management of the organization can be modified in a flexible manner and unnecessary litigation can be avoided.
In order to make the company more flexible in the future, clauses such as a non-compete agreement for departing shareholders can be added to the agreement.
It is also possible for shareholders’ contracts to contain a shareholder buyout agreement or a buy-sell agreement to limit the transfer of shares among the company’s key members. In the absence of these agreements, an exiting shareholder may transfer her shares to any member of the company or to a non-member without facing any legal consequences.
There are several crucial terms defined in shareholders agreements, including the acceptance of credit and the election of your board of directors. A lack of which can result in heavy litigation for your company.