It is necessary to draft and maintain various legal documents to incorporate a company legally in Singapore. One document is the shareholder agreement that must be undertaken before the company registration process.
These documents are necessary so that the government, customers, and public members can see basic information about your company and confirm that you are a properly organized business that follows the law. To get more details on the Shareholder agreement, keep reading the article.
Among all the legal documents, the Shareholder agreement is the document that addresses all the rights and obligations of the company, which involves shareholder relations and the management of the company. The organizational constitution can also be supplemented with additional rules and regulations not included in the constitution.
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The shareholder agreement can be undertaken among a few of the company’s shareholders, all the shareholders, or the company and shareholders.
Partnerships and sole proprietorships do not have shareholders, so shareholders agreements are not applicable. For partnerships, a partnership agreement would be applicable.
Unlike company constitutions, shareholder agreements are not compulsory when registering a company and aren’t required to be submitted along with the incorporation documents as part of the company incorporation process.
Moreover, it is suggested that all the registered Singapore companies have more than one shareholder to undertake the shareholder agreement. An incorporated Singaporean company is highly unlikely to function without a shareholders’ agreement.
There are several benefits you get by undertaking shareholder agreements.
A shareholder agreement involves the details of the shareholders who sign the agreement and can be altered by either of the contracting parties. However, this year-old agreement can grab the company’s Constitution by outlining the rules and regulations not provided while the Constitution was written. The document is also only available for private viewing, unlike the constitution, which can be viewed by the public, therefore protecting the document’s confidentiality.
Though there is no legal requirement for you to submit a shareholder agreement when you incorporate your company, it would be a good idea to draft it before or at the same time when your company is incorporated.
It is possible to draft and execute shareholder agreements at any time during the company’s lifecycle, but doing so should be part of your company’s setup process.
We have covered a few reasons why every company should undertake the shareholder agreement prior to the incorporation.
- Allow shareholders to make an informed decision to buy-in
Multiple shareholders will potentially have misaligned interests on issues such as who exercises authority, how investors exit the company, and how dividends are paid out. The shareholder agreement protects shareholders by ensuring they understand what they are getting into before investing. Shareholder agreements are a vital part of the formation process of an incorporated company because they provide investors with all the background information needed before investing.
- Minimize disputes and decide on procedures for dispute resolution
When there are two or more shareholders in the company, there are larger chances of disputes among them. These concerns include share transfers, shareholder exits, and the price at which these transactions occur. A proper Shareholder agreement outlines all the terms and procedures properly to grant shareholders to be on the same page. Moreover, shareholder agreements will include all the provisions to specify the procedures for resolving disputes among owners. This will prevent unnecessary legal actions among owners or against the company.
- Protect shareholder rights
Shareholder agreements describe the rights and obligations of existing shareholders. If the company decides to issue new shares, it will be stipulated in its shareholder agreement whether existing shareholders or a third party will be offered the shares first. Additionally, shareholders need to be informed about specific rights and duties, such as the right to vote when a new director is appointed. Particularly for minority shareholders, protection and definition of shareholder rights will be added assurances.
However, it is suggested that business owners planning to register a company in Singapore should prepare their shareholder agreement before the company incorporation. To manage your company smoothly and maintain relationships with shareholders and other stakeholders, it is crucial to have a shareholder agreement.
In summary, the shareholder’s agreement plays a significant role in helping you avoid disputes among the several shareholders and owners of the company. At Singapore translators, you can get the employee contract translation service at a reasonable price.