Change is inevitable. As a company grows and develops, your shareholder agreement might no longer be as effective as when it was first made. With more employees, more shareholders, more resources, and perhaps more departments to handle, the company might have to amend a shareholder agreement to provide better management and increase the efficiency of your shareholder agreements.
If you are looking to amend a shareholder agreement, it is essential to have valid reasons. If not, there would be a high chance of your shareholders not agreeing to the changes. So, before getting into how you can change a shareholder agreement, let’s talk about the reasons why one would want to amend a shareholder agreement in the first place.
Why Amend A Shareholder Agreement?
A shareholder agreement holds the terms of an agreement that you have amongst shareholders. As we know from a previous article about shareholder agreements, it plays a significant role in a company.
There are several reasons to amend a shareholder agreement. Of course, no company would want to amend a shareholder agreement just because they want to. The process to amend a shareholder agreement requires all existing shareholders to agree on the revised agreement. It sounds simple, but you must be able to convince all of the existing shareholders.
As companies grow, certain operations and management system might not be as effective. When the number of shareholders increase, the number of departments in your company has increased, perhaps you might want to consider appointing each shareholder to their own departments so that all shareholders would have their own roles in the company and share the responsibilities equally.
Without a doubt, the shareholders would want the company to succeed. Sometimes investors and shareholders might even request amendments in the shareholder agreements for the better of the company. Therefore, some changes might be needed for success.
How Do You Amend A Shareholder Agreement?
To amend a shareholder agreement it usually requires all shareholders to agree on the revised terms and conditions. It may sound easy and quite simple, but the process could get complicated if there are people who disagree with the revised shareholder agreement.
When there are shareholders who do not agree with the new terms and conditions of the shareholder agreement, the company might have to reconsider their revision and discuss until the company and the shareholders find a middle ground. If there are any conflicting ideas, be wary as a disagreement might turn into a dispute if shareholders and the company could not find a middle ground and settle for a solution.
It would be easier to amend a shareholder agreement if your initial purpose is simply to add in missing information in your shareholder agreements. There is a higher chance for shareholders to agree on the added information if it is for everyone’s benefit.
If a new investor is demanding to amend a shareholder agreement, you must ensure that the revised shareholder agreement will not disadvantage your existing shareholders. Hence, proper consideration must be made before changing any shareholder agreements.
It is not necessary to draft a whole new shareholder agreement. One could simply create a deed of variation where the document only states the changes to the shareholder agreement and have all of the shareholders sign the document to verify the amendments being made.
To amend a shareholder agreement, one must ensure that the draft of the amendment consists of all the necessary revisions. Review your revisions with a professional lawyer and ensure that the new shareholder agreements are satisfactory. Reviewing your shareholder agreements before deciding to amend a shareholder agreement will reduce the risk of having disagreements that might lead to a dispute.
It is tough to say which terms should be amended and what should be added. It would be easier to consult a corporate lawyer who knows the twists and turns in business law. They would be able to give you legal advice based on your business structure and operations.
As a matter of fact, it would have been best to consult a lawyer when drafting a shareholder agreement in the first place. This way you could avoid having to change or amend a shareholder agreement because of mistakes or missing information.
A corporate lawyer would be able to guide you through the necessary information that is recommended for the business. A lawyer would also be able to give you the proper advice for your business. They would be able to spot missing details and prevent any rebuttals when you want to amend a shareholder agreement.