Shareholders agreement, particularly for small businesses, are often over looked. However, making sure you have an excellent shareholders agreement is essential for defining your relationship. Below are top tips and ideas to include in your agreement:
Define the business relationship
To reduce unnecessary conflict in future, the relationship between the company and the shareholders should be stated in the agreement even if it is a business with close friends. It will help to determine the obligations and responsibilities of the shareholders.
Be careful with your choice of words
The wording used must be considered. For example, the wording will be different between optional term and mandatory term. Make sure you consider every word or phrase used in the agree and try to avoid any ambiguities. Ambiguities are interpreted by the court against the person who is seeking to rely on it.
Address those difficult questions
The agreement should list down certain difficulties which might occur in a business. This is to determine who will bear the responsibilities when certain difficulties occurred. Moreover, solutions for certain difficulties can be listed in the agreement. Although some might argue that it seems unusual to include those difficulties when the company has just been launched but it is good and useful as it will help to reduce the burden of conflicts in future.
Terms and conditions
The terms and conditions in the agreement must not be vague or ambiguous. The terms and conditions must not be entered into for other hidden purpose or motive. It must be reasonable and can be interpreted according to the general principles of contract law.
The work will become more convenient and easier if the company use the restrictive covenant effectively. Restrictive covenants contained in a shareholders’ agreement or business sale agreement are generally easier to be enforced. It is because the court perceive that the restrictive covenants in shareholders’ agreements will be longer in duration than those contained in other agreement such as employment agreement.