Guest post by Maria Fahy, Parfrey Murphy.
A Shareholders’ agreement may be loosely defined as an agreement (contract) between some or all of the shareholders in a company and sometimes the company itself, which is intended to govern the rights and obligations of the parties thereto. Frequently, shareholder’ agreements will also deal with the management of the company. The advantages of using a shareholders’ agreement are as follows:
- It ensures secrecy for those provisions which could be publicly sensitive. Often shareholders’ agreements are detailed as to the remuneration of the directors of the company and to other financially sensitive matters which the parties would not wish to be made known to the public at large. If such issues were dealt with in the Memorandum and Articles of Association, which are public documents, their contents could be easily discovered by searching the Companies Registration Office.
- Shareholders’ agreements can be used to give rights and to impose obligations on shareholders that could not be given or imposed by the Articles of Association.
- Shareholders’ agreements can be used to bolster the rights and powers of minority shareholders. Specific shareholders’ agreements, such as pooling agreements, may seek to concentrate voting between groups of members. One definition of a pooling agreement is: “An agreement amongst some of the shareholders in a company in which no one shareholder individually has a controlling interest. The shareholder parties to the agreement agree to act as a unit, for example, in managing the company and may agree a right of pre-emption amongst themselves giving each other an option to purchase any shares another party may be selling”.
- Shareholders’ agreements are often seen as a way of binding the company and/or its directors to a certain course of action.
- Through using a shareholders’ agreement, shareholders may mould their company structure to suit the purposes for which it was incorporated.
If you have any queries in relation to shareholders agreements or other company secretaral issues, please contact me on firstname.lastname@example.org