A shareholders' agreement is the equivalent of a partnership agreement where the trading entity is incorporated. As such, it is equally essential to a partnership agreement and fulfils a similar but not the same role.
Typically a shareholders' agreement will regulate the rights between the shareholders and sits 'on top' of the company's articles of association which it will normally prevail over. Since it is outside the scope of registration requirements under the Companies Act, it has the advantage of being private and will often contain detailed provisions as to rights of transfer of shares, regulation of the business itself, business plan, reserved or veto rights and any other matters for which the shareholders wish to provide. Since it is binding on the shareholders as a contract, its flexibilty makes it a useful tool not only in start up situations but for ongoing businesses.
Where different businesses or individuals have pooled their contributions for a particular purpose it will contain project-specific provisions as a joint venture agreement.
A considerable advantage of a shareholders' agreement is that it can help to prevent complaints of unfair prejudice since it can provide a right of involvement in management and appropriate exit routes.
There are three main instances where you will require a Shareholders Agreement and they are as follows: