A company is made with the support of many shareholders which can be said as the true owners of the company. This relation is necessary to be made binding and for that purpose, what is requisite is a shareholder’s agreement. This is an agreement between the shareholders and the company describing all the obligations and rights relating to the relation between them.
Shareholders' agreement is a part of the proper planning that is absolutely essential for the success of any business. Some have plans that are well written for operating their business, and very few have any effective plans to deal with the issues that might arise between shareholders. A business having multiple shareholders must ensure that the company has a properly structured shareholders agreement that would protect everyone’s interest.
There is never a substitute for corporate governance and to implement this shareholder’s agreement, the best time is when the business is high and good, everyone including shareholders are happy and shall not wait for the three D’s, that is, Death, Disability or Divorce.
To simplify, a shareholder’s agreement is that contract which administers the relationship between the shareholders. Structured properly, it would not cause any barrier in the regulation of a company’s operations even if the relationship fails or in the event if one party leaves the company. A well-drafted agreement would be efficient and an effective mechanism for a succession of business to the next generation or any other party. If not planned properly, this would impact the ability of shareholders to realize value on their shares. And if planned properly, the company will continue to run smoothly in any circumstance of disability, death or retirement of a shareholder.