A shareholder agreement is a legal document that outlines the rights and responsibilities of the shareholders in a company. It is an important document that helps to establish a clear understanding between the company and its shareholders, as well as between the shareholders themselves.
Although a shareholder agreement can provide some much-needed structure to a company, it is important to understand that there are limitations to what it can do. Here are some of the common limitations of shareholder agreements:
1. Legal Limitations: While a shareholder agreement is a legally binding document, it cannot override the laws and regulations that govern corporations in your jurisdiction. You need to ensure that your shareholder agreement is in compliance with the applicable corporate laws and regulations.
2. Limited Power: A shareholder agreement does not give shareholders unlimited power over the company. There are limits to what shareholders can do within the confines of the agreement, and any actions taken outside of these limitations may be challenged.
3. Binding Only on Signatories: A shareholder agreement is only binding on those who have signed it. If a shareholder does not sign the agreement, they are not bound by its terms. This can be problematic if a majority of shareholders have signed the agreement, but some have not.
4. Limited Scope: A shareholder agreement is limited in scope to the matters covered in the agreement. It cannot cover every possible scenario that may arise in the course of the company`s operations. As such, it is important to ensure that the agreement covers the most critical matters.
5. Changes Require Agreement: Any amendments to the shareholder agreement require the agreement of all shareholders. This can be difficult to achieve if there are many shareholders and/or if their interests diverge.
In conclusion, a shareholder agreement can be a powerful tool to help establish clear expectations between a company and its shareholders. However, it is important to understand its limitations and ensure that it is drafted in a way that is compliant with relevant laws and regulations, and covers the most critical matters.