A shareholder’s agreement is a document that defines the relationship between the shareholder and the company. Shareholder’s agreement defines the mutual obligations, provisions, authorities, privileges, rights and provisions regarding authorities and management of the company. The main aim behind the shareholder’s agreement is to safeguard the interests of shareholders especially for the ones that are having not more than 50% of the company’s shares.
Shareholder’s agreement normally outlines the bye-laws relating to the right of the shareholder regarding the following points:
Appointment of Directors: The shareholder’s agreement clearly mentions the rights and provisions of shareholder relating to the director’s nomination.
Removal of Director: Including appointment of the director the shareholder’s agreement also specifies the procedure relating to the removal of a director from any company.
Appointment and Removal of Auditors of the Company: It also lays down the current auditors of the company and the rights of the shareholder to change or remove auditors of a company.
Voting Rights: The shareholder’s agreement also lays down the rights relating to the voting to pass a resolution in the meeting of a company including board, general and annual meeting.
Issue of Further Shares: The agreement also carries the policies and the requirement to approve or pass the further shares in case if a company wants to issue new shares.
Quorum Bye-laws: The shareholder’s agreement also includes the bye-laws regarding the board meeting quorum. The quorum of the board meeting shows the minimum attendance required to carry out a board meeting.
Transfer and Sale of Shares: In the shareholder’s agreement, one can easily find the process regarding the sale and transfer of shares either to the existing shareholder or the outsider.
Authorized and Paid-up Capital: The person holding the shareholder’s agreement can clearly check the authorized and paid up share capital of the company.
Raising Finance through Bank Loan: Shareholder’s agreement also states the power of shareholder to approve the step of a company to raise funds through banks or other financial institution.
Confidentiality Clause: This agreement also includes a confidentiality clause according to which a shareholder cannot disclose any confidential information about the company through any means to the outsiders.
Through the above points, we can conclude that the role of shareholder’s agreement in a company plays a very crucial role as it states all the powers that a shareholder carries to regulate the day-to-day activities of the company. In addition to this, the shareholder’s agreement helps in avoiding any disputes between the company and shareholder’s by clearly specifying the roles and responsibilities of the shareholder. The shareholder’s agreement motivates the shareholders to stay invested in the company for the long run thus enhancing the goodwill of the company.
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