Importance Of A Shareholder’s Agreement

A shareholder’s agreement is a contract between the shareholders of a company. The purpose of it is to outline the procedures to be followed within the company and how the company is to be managed. It can also serve as a means to address issues that might cause shareholder conflict in the future. It is confidential and is not available to the general public. It can be very beneficial to family companies as an aid to avoid disputes further down the line. Matters that are often addressed in a shareholder’s agreement are as follows;

Share Transfers

Provisions can be put in place to restrict the transferability of shares. Consent of other shareholders can also be added and provisions for what happens in the event of divorce or death.

Dividend Policy

Differing shareholders may have differing views on how to distribute the wealth of their company. A shareholder’s agreement can be used to agree upon such a policy.

Voting Rights  

The agreement can provide for clauses which state that certain decisions may only be reached if a certain % of shareholders approve of it. This would help protect minority shareholders in many instances.

Shareholders exit from business

Conditions can be put in place for share valuations upon a shareholder’s exit from the company. Other clauses include the rights for other shareholders to buy the shares before they are offered to the market and the right for other shareholders to buy the shares at a discount compared to third parties.

Conflict management

This can be of great benefit to shareholders and can provide a roadmap to be followed in the event that shareholders have a dispute. This can help prevent significant legal bills in the future.

Although it is often far from people’s minds at the time, the best time to introduce a shareholder’s agreement is when a company is being set up. Where this is done, it can be of great benefit to the company and its shareholders.

What questions do you have?

We are happy to help. Please post your comment below or contact our friendly and knowledgeable team on 01 677 9000. 

To keep in touch, connect with us on Linkedin.

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    Posted on August 14, 2018 by Cooney Carey

    Giving shares to key staff

    This is a common issue in businesses and these two methods are effective:

    Clog shares

    These shares will carry restrictions such as they can’t be sold for 5 years.  The benefit is that they can be substantially discounted when calculating their value.

    Growth shares

    These are a separate class of shares and the shareholders participate in the value of the company over a set hurdle.

    What questions do you have?

    We are happy to help. Please post your comment below or call Paul Leonard, Partner at Cooney Carey, on 01 677 9000. Alternatively, send him an email: pleonard@cooneycarey.ie

    If this article helped you, please share it with other businesses.

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      Posted on July 3, 2018 by Paul Leonard

      The 7 Stages of Planning an Audit

      The planning of an audit is a fundamental part of completing a successful assignment. The process can be broken down into the following stages;

      Stage 1- Appointment

      The main focus of this stage is ensuring that there are no factors that prohibit the assignment from commencing. The following procedures are carried out as part of this stage;

      • Ensure client due diligence and anti- money laundering information is up to date.
      • Review whether there are any Ethical threats to the assignment and where such threats occur, are there safeguards that can be applied to allow the engagement to continue.
      • If there was a different auditor in place in the prior year, has sufficient appropriate evidence been obtained concerning the opening balances. In such instances, professional clearance should be obtained from the outgoing auditor.
      • A letter of engagement is prepared and signed.

      Stage 2- Risk Assessment

      This stage involves an assessment of the company’s situation from various sources with a view to determining the overall audit risk. This stage involves;

      • A review of issues arising in previous years.
      • A review of the permanent audit file of the company and any relevant correspondence during the year.
      • Discussions with management on any relevant issues which occurred during the year.
      • A review of draft financial information to compile a preliminary analytical review.
      • A review of the internal controls in place in the company.
      • A calculation of materiality
      • A preliminary assessment of going concern.

      Stage 3- Audit Approach

      Following on from stage 2, should be a summary of the key audit risks and how these risks affect the planned approach of the audit. The overall risk (including fraud risk) should be assessed as low, medium or high.

      For each individual financial statement level, a planned audit approach should be documented. All risk areas should have an appropriate plan to deal with that risk. The work program of the audit should be driven by this.

      Another matter to be considered at this stage is the framework on which the financial statements will be prepared and if reduced disclosure options are available.

      Stage 4- Administration

      An appropriate staffing plan should be put in place for the assignment (with appropriate skillsets and experience assigned to the team). A timetable for completion of the job should be agreed with the client.

      Stage 5- Audit team briefing

      A team meeting sets out the planned audit approach, the key risk areas, how these risks will be addressed and clarifies each members role in the assignment.

      Stage 6- Client Service

      Consider whether any useful recommendations can be made to the client regarding any issues identified.

      Stage 7- Client Communication

      The client should be notified of any changes in the nature/scope of the assignment. In addition to this, the information required by the audit team is communicated to and agreed with the client.

      What questions do you have?

      We are happy to help. Please post your comment below or contact our friendly and knowledgeable team on 01 677 9000. 

      To keep in touch, connect with us on Linkedin.

      If this article helped you, please share it with other businesses.
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        Posted on July 3, 2018 by Cooney Carey

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