A shareholders agreement is a vital element of any arrangement that involves bringing shareholders into a business. As a legal document that outlines the rights, responsibilities and obligations of shareholders and the company, it is a mutually beneficial agreement protecting the business and the shareholders. It sets out the rules regarding the control of important decisions by the shareholders, the transfer of shares, non-compete obligations, confidentiality clauses and dispute resolution.
At JPP Law we only provide bespoke shareholders agreements, but we understand why startups opt for the cheaper solution of a shareholders agreement template. In our view a good template, which is a good fit for your business needs, is certainly better than no agreement at all, but a bespoke one is better. If there is no budget for a bespoke agreement at the outset, then there is the option, once the business starts to grow and there is a little more flexibility on expenditure, to instruct a solicitor on a shareholders agreement review and perhaps replace the shareholders agreement further down the line. This is certainly something to consider if the business is seeking, or has secured in principle, investment. This is because it is always best to enter negotiations from a shareholders agreement that is a favourable starting point to which investors may simply ‘sign up’.
Shareholders Agreement Template vs the Bespoke Shareholders Agreement
A template may be suitable for a small business with the need for a very simple shareholder agreement, but in many circumstances a shareholder agreement is a complex arrangement that requires a highly detailed and customised legal document to protect all parties. Should things go wrong, the implications, as well as the costs for the business and its shareholders, could be significant.
Here we look at the factors that may influence your decision when opting for a shareholders agreement template, or drawing up a bespoke shareholders agreement with legal advice that meets the specific needs of the business arrangement.
Complexity
First and foremost, if the arrangements between the shareholders are complex and do not all seem to be appropriate to a shareholders agreement, then it is advisable to consult with a professional commercial law firms to get a customised agreement which is tailored to your business. This approach is more likely to cover all eventualities and to provide the protection that a shareholders agreement is intended to create. Using a generic template can leave significant holes in the protection that could be offered by a bespoke agreement.
Founders or Investors?
Some template shareholders agreements are intended for use in relation to a funding round of the company. They sometimes provide more control to investors than founders would ideally like to accept. Founders should consider whether clauses that are provided as standard are reasonable in their particular circumstances.
Flexibility
Leading on from this, another benefit gained by using a bespoke shareholders agreement is that you can build in, in conjunction with other agreements, specifics relating for example to the relationships between the shareholders, in particular any vesting arrangements in relation to their shares. In this way you can avoid the risks of overlapping templates that do not work properly together.
Looking after your business and its shareholders
While a basic shareholders agreement will outline the basic rights and responsibilities of shareholders and protect their interests, with a customised agreement you can often provide the company and the shareholders with enhanced protection.
Valuable professional advice
Finally, and this can’t be emphasised enough, when you work on a shareholders agreement with a commercial solicitor, you will get tailored advice that provides a bespoke shareholders agreement and any associated agreements that fit your requirements. You will not achieve that by using a template.
Make the right choice for your business
Using a shareholders agreement template can be a good starting point and may suffice if the arrangements are simple and are all covered by the template. However, in other circumstances seeking advice from corporate solicitors is the better option for drawing up a shareholders agreement that is customised to the needs of your business.
Professional businesses need professional help to succeed. Partnering with an experienced firm of commercial solicitors such as JPP Law means you get the advice and professional support to help your business now and in the future. For professional help crafting the best shareholders agreement for your business, start by booking a free introductory call with a JPP solicitor.
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