A shareholders’ agreement includes a date; often the number of shares issued; a capitalization table that outlines shareholders and their percentage ownership; any restrictions on transferring shares; pre-emptive rights for current shareholders to purchase shares to maintain ownership percentages (for example, in the …
It outlines the rights, obligations of the shareholders and provisions related to the management and the authorities of the company. The purpose of the agreement is to protect the interests of the shareholders; especially minority shareholders i.e the ones holding less than 50% of shares in the company.
A shareholder also referred to as a stockholder, is a person, company, or institution that owns at least one share of a company’s stock, known as equity. Because shareholders are essentially own the company, they reap the benefits of a business’s success.
A shareholders’ agreement is created with the purpose of protecting both the business and its shareholders. It ensures the shareholders are treated fairly. It can also be beneficial to minority shareholders, who usually have limited control over the business operation.
The structure of a company’s board helps to protect shareholders by having checks and balances in place and ensuring there aren’t any conflicts of interest between the board members and management of the company.
Is a shareholders agreement legally binding? Once a shareholders agreement has been signed it should be legally binding, provided that it complies with the usual 4 aspects of a contract: offer, acceptance, consideration and an intention to create legal relations.
Types of Shareholders:
- Equity Shareholder:
- Preference Shareholder:
- Debenture holders:
- Changes to the constitution of the company.
- Declaring a dividend.
- Approving the financial statements of the company.
- Winding up of the company by way of voluntary liquidation.
Roles of the shareholders
In general, shareholders have little power over the directors and how they run the company. Their main role is to attend meetings and discuss whatever is on the agenda to ensure the directors do not go beyond their powers – and provide shareholders’ consent where required.