Shareholds’ Agreements And It’s Advantage

What Is A Shareholders’ Agreement?

A shareholders’ agreement is a contract between the persons (or even companies) who are parties to it, and set outs and regulates the different rights, powers and obligations of various parties. These include shareholders, directors and, if applicable, investors of the company.

A shareholders’ agreement may be enforced in other jurisdictions so long as it is set out inside the agreement and agreed upon. In Singapore, shareholders’ agreements are governed by Singapore Contract Law.

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Where there is no shareholders’ agreement in place, the relationship of shareholders between themselves and with the company are governed by the Constitution, or by the Memorandum of Association and Articles of Association (“M&AA”) for companies incorporated before 2014, prior to amendments to the Companies Act.

Why The Need For A Shareholders’ Agreement If There Is A Constitution or M&AA?

Where not covered by the Constitution, a Shareholders’ Agreement may supplement it by implementing additional rules and regulations, and sets out the understanding of the various business parties.

More importantly, as a general rule, only the parties to a contract can sue or be sued under the contract, as it only binds only the parties who sign the agreement and can only be altered by the same contracting parties.[1]

Highlighting Some Advantages Of A Shareholders’ Agreement

No.1 – As a shareholders’ agreement can introduce any new rules or regulations that were not incorporated into the Constitution at the time it was written, it allows for changes and flexibility to accommodate the growth and changes of the company.

No.2 – Unlike that of a Constitution, the shareholders’ agreement is confidential and not available for public viewing.

No.3 – The Singapore laws do not prescribe any limit on the term of a shareholders’ agreement.

No.4 – A shareholders’ agreement can be drafted and signed at any point of time of the company’s life-span.

shareholder's agreement finalised in singapore

No.5 – Although the shareholders’ agreement is not mandatory document, it is still highly recommended for incorporated companies with more than one shareholder. This is to ensure that all shareholders are informed and aligned as to what they are contracting into. A shareholders’ agreement allows for shareholders to gain all prerequisite knowledge they require before buying into the company.

No.6 – As shareholders’ disputes are largely common, a shareholder’s agreement minimises disputes and streamlines the process and procedures for dispute resolution. This will prevent unnecessary legal action amongst shareholders or against the company.

No.7 – A shareholders’ agreement can also protect shareholders’ rights as it is typical for a shareholders’ agreement to set out specifics such as shareholders’ voting rights. Minority shareholders in particular can be made aware of their rights and be assured of protection, if properly set out in the shareholders’ agreement.

Seek Free Legal Advice For Your Peace Of Mind

Thus, it is highly recommended to seek legal advice and have a shareholders’ agreement drafted by a lawyer and set in place before the incorporation of a company. However, it is never too late for a company without shareholders’ agreement, to have one drafted and executed at any point of time.

It is best to consult your lawyers as one may not appreciate the nuances and legal repercussions that may occur, should one choose to draft a shareholders’ agreement himself or copy off from the Internet.

Not all businesses are alike, and each shareholder has his or her interests to protect and ought to be made aware of his or her rights, regardless of whether a company is a start-up or a multi-million dollar business.

business owner thinking about putting up an agreement

For business owners, here are some questions that you need to ask yourself;

  • “Are you a shareholder of a company?
  • Do you have a shareholders’ agreement signed and set in place or are about to sign one?
  • Do you have concerns about your shareholders’ agreement?
  • Or do you not have a shareholders’ agreement and is concerned about the necessity of having a shareholders’ agreement drafted?

If any of the questions above apply to you, feel free to consult us. Our lawyers at the firm are experienced and more than happy to provide you with our services for consultation, advice and drafting shareholders’ agreement.

Beyond shareholders’ agreements, our lawyers at the firm are also experienced with dealing with businesses of all sizes. Should you have any enquiries regarding shareholders’ agreements or other corporate related matters, feel free to contact us.

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The information contained on this website contains general information about our lawyers, firm and procedures and is not intended to constitute legal advice.

Any person viewing or receiving information from this Website should not act or refrain from acting, on the basis of any such information without first seeking appropriate legal advice.

[1] Notwithstanding that there is an exception to this rule under the Singapore Contract (Rights of Third Parties) Act.

[2] Note: This list is non-exhaustive and merely highlights some of the more distinctive benefits to having a shareholders’ agreement drafted early.

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