This is a short form version of a Shareholders Agreement which creates a contractual relationship between the shareholders of a private limited company. There is no provision for new shares to be issued and the intention is for each shareholder to own equal shares, there are therefore no minority or majority shareholders and so therefore no bias, as such it is well suited to family companies.
The main advantage of a Shareholder Agreement is that in addition to enforcing their shareholder rights against the company under its constitution it allows individual shareholders to enforce their rights under the agreement against each other, providing more protection from the possibility of being squeezed out of the management of the company.
It sets out the basic elements of the shareholders' relationship with each other and includes the right to first refusal (pre-emption) for the parties should one shareholder wish to sell their shares, helping to prevent outside investors from muscling in on the company. Furthermore, any people to whom shares are transferred must agree to be bound by the terms of this Agreement.
This Agreement assumes that the Company will continue to use its existing Articles of Association, although care should be taken for inconsistencies between the two documents. Although inconsistencies should be avoided provision has been made within the Agreement that it shall prevail over the Articles in the event of such inconsistency.
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