Shareholders Agreement



An essential part of founding a company is the Shareholders Agreement, irrespective of who the shareholders may be. The purpose of a Shareholders Agreement is to protect the company along with the shareholders in the event of any disputes. This will often result in costly litigation processes.

To avoid this, our Shareholder Agreement aims to regulate the professional interaction and relationship between the company and its shareholders, and the shareholders with each other. This is achieved by providing for the common elements together with room for customisation to suite your unique company needs.

Shareholder agreements, if properly drafted, form the cornerstone of a business relationship. The golden rule in such agreements is to remain objective when concluding a shareholders agreement. It is important that this agreement is reduced to writing to avoid any unnecessary disputes in the future.

Shareholder agreements essentially protect each shareholders interest and the entirety of the business. This agreement will formalise the relationship between shareholders and govern the duties, responsibilities, decision making and possible disputes of and between the shareholders.

Why you should have a written shareholders agreement:

  1. From the onset, the rights and responsibilities of each shareholder will be set out in a clear and concise manner, thus limiting disputes in this regard.

  2. Clear guidelines will exist for the sale of shares.

  3. Disputes in general will be limited as the agreement may be referenced in the event of lack of clarity.

  4. The agreement will stipulate how directors will be nominated and/or removed.

Shareholders v Directors:

A shareholder must be differentiated from a director as these terms are often confused though they are two vastly different terms – the shareholders of a company, own the company, while the directors of the company – as the name suggests – direct the company by managing and running the day-to-day operations of the company.

A shareholder can be a director; however, a shareholder may also be a shareholder without being a director. The revers of this is also correct – a director may be a shareholder, or a director may hold no shares in the company.

Shareholders earn dividends, which is a share in the profit of the company, while directors are employees of the company and earn a salary.

The dividend structure is usually one of the items included in the shareholders agreement.

General items in the Shareholders Agreement:

The Shareholders:

The Shareholders Agreement will often begin with the names and identity numbers of the shareholders, each of whom will initial every page of the agreement before signing in full on the last page.


The meetings by shareholders will be separate to those held by directors, though the directors may be included in these. The agreement will stipulate how often and where the meetings will take place. The agreement will further stipulate whether meetings can or should be held under urgent circumstances and possibly what an urgent circumstance will mean.

Dividends and types of shares:

The shareholders agreement will set out how profit will be shared and when these profits will be paid out to the shareholders. The agreement will further stipulate, what each of the shareholders are required to contribute to the company. This is possibly the most important part of the shareholders agreement as these issues often become disputes if not properly set out and understood.

In addition to dealing with dividends, the agreement will set out the type of shares which are held by the shareholders, how many shares each shareholder holds and what procedure must be followed should a shareholder decide to sell his/her shares.

Dispute Resolution:

One of the most important clauses to be included in the Shareholders agreement is a Dispute Resolution Mechanism. This mechanism will guide the shareholders when disputes arise. Legal avenues are generally used as a last resort, avenues such as mediation and arbitration are encouraged.


A shareholders agreement, in writing, sets out and simplifies the terms of the agreement. This agreement ensures that each party enters into the agreement with the requisite knowledge of the terms thereof, allowing each shareholder to make an informed decision and protecting each shareholders “piece” while simultaneously protecting the company as a “whole”.