When you run a business in the European Union, you might decide to be a publicly listed company. You have shareholders involved, which can be highly beneficial for many businesses. However, one factor you need to consider is the importance of clear, well-structured shareholder agreements.
Shareholder agreements will establish an agreement between two or more shareholders within the company. This should include all rights, protections, and restrictions. From voting rights to the ability to transfer shares, a shareholder agreement has to tick many boxes. What useful tips for creating agreements that stand the test of time?
Always involve your founders
This may seem obvious, but many shareholder agreements are put in place without consensus and agreement from company founders. If founders and/or principals within the company have any meaningful say in the business, then they should be included in forming such agreements.
Some might prefer to use a separate founders’ agreement instead, which is built specifically for their own purposes within the company. Either way, ensure you always have your most senior founders and principals involved in the shareholder agreement.
Ensure your agreements are legally sound
EU law can be confusing, and it is easy to confuse national law with EU law. Make sure you bring in the prerequisite legal expertise to help you form better agreements. Ensuring that you have someone who can review each part of the shareholder agreement and ensure it is legally applicable is very important to building a strong, sound, and cohesive message.
Find a court of ruling
Depending on your company, you might find it easier to set one particular court of ruling. For example, if most of the company founders and/or shareholders reside within Germany, you might choose to use the German courts as the forum for handling and managing disputes between shareholders. This can be useful if you are looking for ways to ensure a clear location where disputes will be handled.
This saves shareholders from having to fly across the continent to try and resolve disputes that could be handled in one nation.
Do not be afraid to handle difficult questions
Many shareholder agreements are developed in moments of pure optimism where everyone feels like success is just around the corner. However, it is important to note that this optimism can often be ill-founded. Make sure that your shareholder agreement touches on the questions that many looks to avoid, such as:
- What happens if major shareholders have a fallout and cannot resolve their relationship?
- What is the process if a major shareholder or founder falls ill and has to move on?
- What happens if the banks or lending institutions being used fail or stop lending funds?
These questions often feel like they are being negative for the sake of negativity. In the optimism of a shareholder agreement, though, it is vital that someone tempers the agreement with realism. Be sure that agreements are established for these tough but important questions.
Keep these factors in mind, and it can be much easier to go about arranging a shareholder agreement that suits everyone. This is not an easy task, but it is essential in forming a business that will be successful and, hopefully, profitable in the long term.
