Shareholders agreements in focus

Shareholders agreements in focus

Muneeb Dean, head of corporate litigation at DBS Law, on why shareholders agreements are good business.

When do you need a shareholders agreement?

In at least two situations;

  • You are thinking of investing into a  private limited company with somebody else, or
  • You already own shares in a private limited company, and the company does not have a shareholders agreement in place.

Why do you need a shareholders agreement?

If you do not have a shareholders agreement in place, and you disagree with any of your fellow shareholders on matters which are key to the business, how it is run,  it’s  strategy, or future plans, then;

  • You are likely to have an impasse,
  • You may be forced to rely on very limited legal rights you have,
  • The impasse will result in a protracted dispute, and
  • The dispute may ultimately end up going to court.

This is something best avoided if possible. Not least because it is a very expensive and time intensive process, and will involve a lot of management time better spent focussing on your business.

What do shareholders agreements do?

If it is well drafted, it will cover a variety of things such as;

  • How your business is run and governed on a day to day level,
  • How key decisions are made,
  • How to resolve matters between shareholders,
  • What happens if somebody wishes to join or leave the business,
  • How shareholders get their money out of the business, and
  • How you can get value from your business when you wish to move on.

A good law firm will...

  • Listen to you ,
  • Seek to understand the drivers to your business, and
  • Discuss what your goals are, and your joint ambitions for the business.

Only once this is done, will they go through with you a checklist of various matters they would suggest you discuss with your fellow shareholders. You are likely to be enlightened by how accommodating and collusive shareholders can be by going through this process, rather than doing nothing.

Muneeb Dean is head of corporate litigation at DBS Law