How to draft a shareholders agreement? 3 top tips for drafting a simple shareholders agreement

3 tips for drafting a simple shareholders agreement (using Docue’s simple shareholder agreement template)

1. Clearly define shareholdings and ownership structure

One of the more crucial purposes of a SHA is to define the ownership and voting rights of each shareholder. This information should be explicitly stated to avoid any confusion or disputes in the future.

A well-drafted and simple shareholders agreement will clearly state the key details of each shareholder and the number and class of shares that they hold in the company. Making it clear the class of shares owned will be key, as different classes of shares generally come with different rights (including voting rights etc).

2. Set out the shareholders’ roles and responsibilities

To avoid any potential misunderstanding about shareholders’ roles and responsibilities, a simple shareholders agreement will include detail about:

• Rights in relation to the board of directors - to manage the relationship between shareholders and the board of directors effectively, a simple shareholders agreement will set out the shareholders' rights in relation to the appointment and removal of directors from the company's board.

• Reserved matters - one of the main purposes of a SHA is to regulate the relationship between shareholders of a company. One way that this is done specifically, is by setting out a list of 'reserved matters' that cannot be implemented without the consent of a specified percentage of a company's shareholders. This means that the majority shareholders cannot just run the company as they please and provides some protection for the minority shareholders.

• Other rights - for example, pre-emptive rights and drag/tag rights. More information about pre-emptive rights can be found here and more information about drag/tag rights can be found here.

By setting these roles and responsibilities out in writing, shareholders can have a transparent and effective relationship from day one.

3. Consider exit strategies and dispute resolution mechanisms

lthough this will be at the very back of everyone’s mind when entering into a shareholders agreement, it is important to consider what happens if things go wrong and there is a dispute between shareholders.

A simple shareholder agreement can still be an effective tool in resolving disputes and ensuring a smooth exit from the company if required. Clearly outlining the steps to be followed in case of a disagreement or conflict, can ensure a fair and efficient resolution process that reduces the risk of damage being caused to the company.

How can Docue help you draft a simple shareholders template?

Docue’s shareholder agreement template is super simple to use - all you need to do is answer a series of questions and your document will be updated and produced in real-time. And don’t worry if you get stuck along the way, because Docue’s lawyers have included guidance notes to help you answer each question.

Find out more about why your company can benefit from a well-drafted and simple shareholders agreement here.

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