What is a shareholders’ agreement?
A shareholders’ agreement is a document that regulates the mutual relationship between the owners of a company.
The necessity of a shareholders’ agreement
The many rules in the Companies Act regulate the relationship between the company and the owners to a great extent, but only to a limited extent the mutual relationship between the company’s owners. Therefore, the owners themselves must enter into an agreement that sets the framework for their joint ownership of the company.
A shareholders’ agreement is particularly relevant when there are several owners. Because the owners must reach an agreement on the operation of the company. In addition, it is a good idea to draft a shareholders’ agreement in connection with a generational succession or in the case of a partial sale of the company.
Get the shareholders’ agreement in place from the start
We recommend that a shareholders’ agreement is entered into already at the company’s founding. When the company is established, the owners usually agree on the visions for the company. Therefore, it is much easier to agree on how any disagreements in the future should be resolved at this time.
What does a shareholders’ agreement contain?
Many points should always be considered when drafting an shareholder’s agreement. Below you can read more about some of those points.
The capital base of the company
The shareholder’s agreement should state how much capital the owners are required to inject into the company and whether the owners are required to inject additional capital later. It can, e.g. be agreed that the owners undertake to inject extra capital into the company if a critical loss arises.
Management and decision-making competence
The agreement should also contain provisions on the company’s management. However, what must be stated in the ownership agreement depends mainly on the management structure of the company. Suppose a board of directors manages the company. Then the contract should lay down rules for who appoints the board of directors, but also how the board of directors can make decisions. It is often worth considering whether certain decisions should require unanimity among the board.
If the owners are to make an effort in the company, the extent of this should also be determined in the ownership agreement.
Distribution of profits and dividends
Over time, a company can generate a not insignificant profit, and the owners should therefore also agree on how this profit shall be managed and to what extent dividends should be distributed.
Transfer of shares
During the company’s life, changes may occur among the owners that make an owner want to sell his share of the company. Therefore, shareholders’ agreements should always determine how a sale of shares is to be conducted.
E.g., it can be agreed that a right of first refusal applies to the other owners or that an owner must be able to demand that the entire company be sold.
If shares are to be sold, the shareholders’ agreement should also determine how they are valued.
If the owners’ shares are not separately owned, a divorce may risk forcing the divorced owner to sell his shares. It could even mean the company has to close in a worst case scenario. Therefore, the shareholders’ agreement should also contain provisions on separate ownership.
There are several different types of separate ownership, and it is essential to keep in mind what the chosen form of separate ownership means for the company.
One of the essential points in any shareholders’ agreement is how to resolve disagreements between the owners. Once the conflict has arisen, it can be challenging to reach an agreement. Therefore, the company may end up in a deadlock situation where it is paralyzed. Consequently, it is essential to have an shareholders’ agreement that carefully determines how conflicts between the owners shall be resolved.
The shareholders’ agreement does not bind the company itself
Although the shareholders’ agreement is entered into to regulate the ownership of a company, the agreement is not binding on the company itself. Instead, it is the articles of association that regulate the company’s actions. Therefore, it is essential to keep in mind that there must be consistency between the shareholders’ agreement and the company’s articles of association.
Seek legal advice
The shareholders’ agreement forms the foundation for the joint ownership of the company. It is, therefore, crucial to have given careful thought to what is stated in the agreement.
At Advokatgruppen, we are ready to help you and your partners find the ownership agreement that works best for your particular joint ownership and assist you in ensuring the best conditions for a successful collaboration that can last for many years.