A business is a legal term that contains dealing with goods and services. A small business can have one or two partners, but as the business extends then more and more people are required to handle different processes. When a business has more partners then it is advisable to have partnership agreement between them.
What is a Shareholder Agreement?
Shareholder agreement is similar to a partnership agreement. But partnership agreement is done between partners while shareholder agreement is done if you are setting up your business with another limited company. This is the first thing that one should look into while setting up a company with others. It is highly recommended that a company having more than one shareholder has a shareholder agreement.
Shareholder agreement is a legal agreement that contains sections to maintain the fair prices of shares, especially, when sold.
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The shareholder agreement provides power to the shareholders for purchasing more and more shares. At the same time it can be used for controlling voting during meetings.
Advantages of Shareholder Agreement
The first and foremost advantage of a shareholder agreement is confidentiality. This is done to avoid any kind of misunderstandings or future discrepancies that could happen between shareholders in future. Shareholder agreement may vary from company to company. Every company designs the agreement as per its requirements. A shareholder agreement is a bond signed by the members of a limited company.
Any new member entering into a shareholder agreement gets bound by it. This is considered as a drawback by many people. For example when a shareholder transfers his shares to a new member then the new member in turn needs to agree with the shareholder’s agreement. A shareholder agreement is good if the strength of shareholders is less but becomes complicated as more members are added.
Disadvantages of Shareholder Agreement
The shareholder agreement is done seeing present conditions. But in future many problems could occur to a company or between shareholders over issues like strategies, salaries, profit, losses, employments, work pressure etc. When complications arise then different members could have different views and running business under this situation could be difficult. Therefore, shareholder agreement is a good thing if followed properly but can become burden for many if the process and business gets complicated.