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Why to Register a Company With a Shareholders Agreement?

Register a company with a shareholders' agreement

Company Formation & Shareholders Agreement

Register a company with a shareholders' agreement: if you are registering a company, and that entity has a few shareholders, then it is wise to consider putting a shareholders' agreement in place. This is beneficial to both the shareholders and the organisation for a number of reasons, which are detailed below.

When a company is registered, it has to file articles and memorandum of association. These set out, in simple terms, the agreement between the company and its shareholders. Articles of association are available for public viewing, so understandably businesses and shareholders prefer to set out the more bespoke terms of their agreement in a private, but legally binding, document. This is where the company registration with the shareholders' agreement comes in.

Company formation with a shareholders' agreement means that a contract exists between the entity and its shareholders. The terms stated in the shareholders agreement upon a company registration is regulate the relationship between the two parties.

Company formation with a shareholders' agreement means that you can set out terms that are not covered in the articles of association. The shareholders agreement can be tailored to take into account other requirements such as the rights of minority shareholders, the distribution of shares between the current shareholders and the procedure that is to be followed when selling shares to new shareholders.

Reasons to draw up a shareholders' agreement when registering a company include: the full set of terms between the two parties have been set out and agreed and they can be legally enforced. A shareholders' agreement can cover terms around: -

1. The number of shares held by each shareholder
2.The payment and distribution of dividends
3. Agreements on the process involved in making company decision that will potentially affect all investors
4. Buying and selling shares
5. Transferring of shares owners
6. Dispute resolution
7. Addition of new shareholders, etc

Equal say and protection for all parties - everyone is protected, the company, majority and minority shareholders; all have equal say in proposed changes and decisions. To change a shareholders' agreement there has to be 100% agreement, while articles of association proposed changes only require a 75% vote.

Privacy upon a company formation: a shareholders' agreement allows you to set out private and confidential terms between the company and its shareholders. This agreement in between shareholders of the company, unlike the articles of association, is not available for public viewing.

A shareholders' agreement can be changed as the company grows: providing the company directors and shareholders all agree, a shareholders' agreement can be adapted to reflect changes in the company, new shareholders coming in, changes in dividends, and so on.

It takes precedence over the terms in the articles of association: if a situation arose where there was a dispute between the company and its shareholders then the terms of the shareholder's agreement would be considered above the terms set out in the articles of association. This means that the terms specified at company registration would be adhered to which is comforting for both parties.

A company formation with the shareholders agreement is a sensible decision legally. All parties know where they stand and the terms set out and agreed upon will help manage the relationship between the firm and its' shareholders' long term.