Considerations for the necessity of a shareholder agreement:
While not mandatory, a shareholder agreement can greatly facilitate the smooth operation of a company or business. There are several reasons why a shareholder agreement may be required:
a) To supplement the company’s constitution.
b) To incorporate specific provisions among shareholders.
c) To address shareholder concerns.
d) To enable easy modifications by contracting parties.
e) To safeguard the interests of minority shareholders.
The advantages of having a shareholder agreement
A shareholder agreement offers the following benefits:
a) It is a confidential document for private viewing, unlike the Constitution.
b) It covers matters not governed by or addressed in the Constitution.
c) It can include various clauses, including non-competitive obligations that preserve a first-mover advantage.
d) It can incorporate investor rights and protections, thereby attracting additional investors.
e) It can protect the rights of minority shareholders.
f) It minimizes disputes and establishes procedures for resolving conflicts.
The disadvantages of having a shareholder agreement:
Although a shareholder agreement can be highly advantageous for shareholders, it does have certain limitations.
a) The shareholder agreement is not enforceable by all shareholders, unlike the company’s constitution. Only parties who are signatories to the agreement can enforce its terms.
b) New shareholders must sign the agreement to be bound by its provisions.
The editorial team at singaporesecretaryservices.com