When there is a growth in your business venture, more people may be interested to be shareholders of the company. A shareholder agreement is crucial to outline the rights, responsibilities and obligations of shareholders to prevent disputes and provide clear framework for the company.
Here are some essential tips for preparing an effective shareholder agreement:
- Define Key Terms. It is important to layout certain key terms used throughout the agreement to avoid ambiguity.
- Clarify Shareholder Roles & Responsibilities. This includes detailing any specific duties and the process for appointing or removing directors.
- Detail Share Ownership & Transfer. Specify the number of shares each shareholder owns and the class of those shares.
- Outline Decision-Making Process. Set out the voting rights, required quorum and certain decisions require an ordinary resolution (that requires a simple majority of 51 percent of the votes) or special resolution (that requires 75 percent of the votes).
- Include Dispute Resolution Mechanism. Include a clear dispute resolution mechanism such as mediation or arbitration for resolving conflicts without going to Court.
At J. Lee & Co., we provide legal services in drafting and reviewing various company and corporate agreements. Do contact us for legal assistance.
