What is a shareholder agreement
A shareholders agreement is a legal document that demonstrates an agreement amongst the shareholders as well as between the shareholders and the company. The relationship between the shareholders and the company is detailed in the constitutional documents which are the Memorandum and Articles of Association however the shareholders agreement often supplements this document.
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Shareholder agreement explained
During the company formation procedure, it is vital that the company complies with the rules and regulations of the jurisdiction that it is being established in. Most jurisdictions do not require a shareholders’ agreement as most companies tend to include their shareholder information in the Memorandum and Articles of Association.
In the case that a company has a small number of shareholders, it is likely to form a shareholder agreement which is submitted with the other constitutional documents. One of the reasons to form a shareholders’ agreement is that this file acts as a private document thus it is not available for the public to view.
Additionally, the agreement allows company flexibility in terms of the constitution. In some cases, businesses anticipate regular changes to their constitution and shareholders’ thus having an agreement in place enables them to modify this instead of altering the Memorandum and Articles of Association.
When forming the shareholders agreement it is important to seek the assistance of a professional consultancy firm as this document needs to be drafted with careful deliberation and must comply to specific criteria.
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