Why have a shareholder or partnership agreement?
Posted on 15th June 2022 at 12:08
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In strict legal theory, the relationships amongst the shareholders and those between the shareholders and the company are regulated by the constitutional documents of the company, such as the Articles of Association.
However, where there are a relatively small number of shareholders, it is quite common in practice for the shareholders to supplement this. There are a number of reasons why the shareholders may wish to supplement (or supercede) the constitutional documents of the company in this way:
· a company's constitutional documents are normally available for public inspection, whereas the terms of a shareholders' agreement, as a private law contract, are normally confidential between the parties.
· contractual arrangements are generally cheaper and less formal to form, administer, revise or terminate.
· the shareholders might wish to provide for disputes to be resolved by arbitration
· greater flexibility; the shareholders may anticipate that the company's business requires regular changes to their arrangements, and it may be unwieldy to repeatedly amend the corporate constitution.
· corporate law may not provide sufficient protection for minority shareholders, who may seek to better protect their position by using a shareholders' agreement.
· to provide formulas for share valuation to cut down on shareholders disputes over the value they can demand for their shares either on voluntary or on compulsory transfers
· to restrict the activities of shareholders – preventing abuse of position and competing activities
· to provide mechanisms for removing minority shareholders which preserve the company as a going concern.
If you would like to learn more about any of the advantages listed above or to discuss our shareholder or partnership agreement services, please email me at firstname.lastname@example.org
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