Share Agreement: The Basics

When starting a business, one of the fundamental considerations is how to divide ownership and control among its founders. Typically, this is done through a legal document called a share agreement.

A share agreement outlines the rights and responsibilities of each shareholder and establishes the terms for their ownership and transfer of shares. It is a critical document that protects the interests of the company and its shareholders.

The share agreement usually includes the following:

1. Shareholder details: The agreement should list the names and contact information of each shareholder.

2. Share allocation: The agreement specifies the number of shares issued to each shareholder and the percentage of ownership that each shareholder holds.

3. Share transfer: The agreement outlines the process for transferring shares and any restrictions on such transfers.

4. Voting rights: Shareholders typically have the right to vote on important decisions of the company. The agreement specifies the number of votes each shareholder is entitled to and how decisions are reached.

5. Dividend policy: The agreement outlines how and when dividends are paid to shareholders.

6. Board composition: The agreement may specify the number of seats on the board of directors, how they are appointed, and their duties and responsibilities.

7. Shareholder disputes: The agreement outlines the procedure for resolving any disputes between shareholders.

Benefits of a Share Agreement

Having a well-drafted share agreement provides several benefits, including:

1. Clarity: The agreement sets out the expectations and responsibilities of each shareholder, reducing the risk of misunderstandings and disputes.

2. Protection: The agreement provides legal protection for the company and its shareholders.

3. Flexibility: The agreement can be customized to suit the unique needs of the company.

4. Future-proofing: The agreement can be amended as the company grows and its needs change.

Conclusion

A share agreement is an essential legal document that protects the interests of a company and its shareholders. It provides clarity, protection, and flexibility, making it a critical component of any business. As such, it is essential to have a well-drafted share agreement in place when starting a company or bringing new investors on board.