A shareholder agreement is made as an agreement that shareholders share the same values and share the same goal for the company’s success. A shareholder agreement also helps companies to operate smoothly. Now you might be wondering how to draft a shareholder agreement for your company.
We have previously discussed the importance of having a shareholder agreement for your business. It is also important to have a proper shareholder agreement. In this article, we will be discussing how to draft a shareholder agreement to avoid mistakes and complications when creating a shareholder agreement.
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Preparing To Draft A Shareholder Agreement
The very first step before drafting a shareholder agreement is taking precautions and deciding whether you are looking to hire a lawyer to guide you through the drafting process. Taking precautions includes understanding the issues that you might face with a shareholder agreement.
By being informed about these issues that might arise with a shareholder agreement, you would also be able to understand that these are the details that should be paid more attention to in order to prevent these problems in the future.
Issues That Might Arise When Drafting A Shareholder Agreement
A shareholder agreement is a legal document that contains a lot of details. As it holds the terms and conditions that will affect the shareholder’s duties and work, it would also affect the company. There are a few issues that one might face when drafting a shareholder agreement.
A shareholder agreement generally consists of two categories of terms and conditions. It consists of the rights and responsibilities of the shareholders in the business. A proper shareholder agreement would also have complete terms on other matters that a shareholder must know such as the terms regarding the company’s financial records, et cetera.
Issues that might arise when drafting a shareholder agreement would usually comprise of the terms and conditions of the contract. This is why drafting a foolproof shareholder agreement with a professional is the most recommended method. Even though a shareholder agreement is not a mandatory requirement under Malaysian law, creating a shareholder agreement would help improve your organization’s structure immensely. An efficient shareholder agreement would be able to help businesses operate smoothly and avoid issues with the management.
Coming up with the terms and conditions of a shareholder agreement requires a lot of considerations. The company has to cover all aspects of the management that are directly or indirectly related to the shareholders. Hence issues like money lending, share ownership transfer or issues, dividends, shareholders that are also employees, as well as what happens when there is an empty seat at the board of directors and who will be appointed to fill in as a substitute or replacement.
The problems that shareholders are often more particular about involves their rights to vote and the election of the board of directors. Shareholder meetings are another topic that might become an issue. There are many shareholders in a company and the company and shareholders have to come to a decision to decide how often meetings should be held and whether or not it is essential for every shareholder to attend the meeting.
This is important to shareholders as part of their rights and duties to contribute to the company’s operation because shareholders benefit from the company’s success and wellbeing. The shareholders would also be highly interested in the dividends and payouts that the company would offer to shareholders. These few matters are the main issues that should be paid extra attention to.
Drafting A Shareholder Agreement With Guidance
If you have clearly understood how complicated a shareholder agreement is, then you have probably realized that a lot of detail goes into every shareholder agreement. As we have discussed in our previous article about how to amend a shareholder agreement, problems amongst shareholders arise due to an inefficient shareholder agreement. Hence, why amendments are sometimes made to complete the contract.
To avoid having to amend a shareholder agreement and facing legal disputes, it is best to trust a professional and hire a lawyer to guide you through the process. A corporate lawyer would be able to give you advice on the necessary details that would suit your company’s shareholders and benefit both the shareholders and your company.
It is possible to draft your own shareholder agreement, but with the help of a professional, you would also save time and resources. With guidance from a professional, you would not be confused on how to draft a shareholder agreement as they are the most informative in the legal field. Hiring a lawyer would also save costs as it would prevent future disputes that might arise.