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What is a Shareholders Agreement and Why is it Important?

A Shareholders’ Agreement is a legal agreement that specifies out the rights and duties of the company’s shareholders, as well as the shareholders’ relationships and management. The agreement’s goal is to clarify the shareholder’s rights and safeguard their investment in the firm, as well as to set the regulations that regulate how the company is run.

Shareholders’ Agreements are often used in Singapore to control the various rights and duties of shareholders in tightly held firms or joint ventures. If there is no shareholders’ agreement in existence, the business’s articles of association regulate the interactions of shareholders amongst themselves and with the company.

Why is a Shareholders Agreement Important?

The agreement assists shareholders in making informed decisions and ensures that everyone is on the same page when it comes to important issues like dividend policy, voting rights, signatories, extra share issuance, new shareholder admission, and shareholder departure. 

Establishing such common ground reduces the likelihood of disagreements, and even if disagreements do exist, the agreement specifies the methods for resolving them, reducing the likelihood that the disagreements would disrupt business operations. The agreement also safeguards the interests of shareholders, particularly minority owners, who may be confident that their rights in the company are protected.

Is the Shareholders Agreement Mandatory?

A Shareholder Agreement, unlike the Company’s Constitution, is not required. If the company has more than one shareholder, however, having one is highly encouraged.

Although the shareholders can engage into a shareholder agreement at any time, having one in place early in the business formation process provides various advantages in addition to guaranteeing a smooth interaction between the shareholders.

The agreement gives the parties a clear understanding of their rights and obligations, and it eliminates any assumptions or presumptions about shareholder relations. It effectively forbids the agreement’s parties from bringing extracontractual claims in the case of a shareholder feud.

What Do You Need to Include in a Shareholder’s Agreement?

Each Shareholders’ Agreement is tailored to a certain business and must include terms that address the company’s and its shareholders’ specific scenarios and conditions. The agreement’s scope might vary significantly, ranging from the implications of a shareholder’s death or incapacity, regulations governing company financing, default events and their repercussions, to clauses governing the sale or transfer of shares and termination. 

As a result, the agreement may govern any topic that the parties may legally agree upon, and the substance is primarily dictated by the parties’ business interests.

If you have any concerns on anything regarding shares in your company, contact us and we can assist you in managing your shares, issuing new shares, modifying existing shares, and a variety of other share transactions.