Although there is no clearly defined legal obligation placed upon companies to put shareholder agreements in place, in practice these are vital for the smooth running of your business, in the context of achieving your strategic goals.

Shareholder agreements serve to clarify voting rights and set down the mechanisms for dispute resolution. They provide an essential safety net for everyone holding an interest in your company, and well-drafted and effective shareholder agreements are a mark of a well-run organisation, which is always an attractive prospect where investors are concerned.

A shareholder agreement can be used to clarify many aspects of the shareholders’ relationship with the company directors, including:

• Voting rights in relation to minority shareholders
• The relevant procedures for dispute resolution, either between directors and shareholders or between the shareholders themselves
• When shares may be transferred
• Borrowing levels
• The power of shareholders in decision-making
• The company’s right to buy back shares
• Restrictive covenants

Because every company is unique, the shareholder agreements will need to be carefully and specifically drafted, in order to take into account, the needs and circumstances in each individual case.