Shareholders RightsWe will be happy to discuss putting a shareholders' agreement in place.”
A shareholders agreement is an important document that governs on how a company should run, various rights and obligations of shareholders.
Unlike company articles that are filed for public access, a shareholders agreement may remain confidential (subject to few exceptions).
We will be happy to discuss putting a shareholders' agreement in place, or update your articles of association, please get in contact us.
There are various reasons to put a shareholders agreement in place, some of these include:
Company Acquisition: Shareholder agreement may prevent issues during company acquisition, should a shareholder refuse to sell his shares with others. This risk can be removed with a shareholders agreement.
Enhancing minority shareholder: The powers of minority shareholders granted under the Companies Act can be enhanced with a Shareholders agreement. In effect, the shareholders agreement can overwrite the Companies Act or the articles of association to give minority shareholders more rights to all or any of the dividends, voting or capital.
Manage company directors: should there be a need if a director is not performing and his involvement is damaging the business commercially, a Shareholders agreement could assist to speed up removal and replacement.
Dilution: If you have not taken measures to secure your position contractually with the other shareholders, investments in shares can be diluted without your consent. Directors and shareholders need to carefully assess dilution and balance capital preservation against using new share capital for financing.
Shareholders activities: A shareholder does not owe other shareholders any fiduciary duties. This implies that a shareholder may abuse his position no restrictions on limitations are placed by a shareholder agreement.
Length of restrictions: Length of time after ceasing to be a shareholder may not compliment the business needs. But restrictions on periods of up to two years are not uncommon but time may vary from business to business.
Pricing the shares on transfer before exit: The value paid on the sale of shares in a private company where there is no comparable market value is difficult to estimate.
Company buy back: Buying back shares from a departing shareholder may be tax-efficient for the company. The acquired shares are cancelled and the proportion of shares owned by current shareholders is increased. The buy back is financed from funds that are available.
Put and call options over shares: The Shareholders Agreement offers flexibility for the parties to generate options over shares. Three of the popular options below are listed:
A shareholder is given a Call option by the company to issue further shares, i.e. more shares or the company or a shareholder(s) can use the Call option on another shareholder to buy more shares. The shareholders’ agreement shall determine when Call option can be exercised.
A shareholder can use Put option to force a shareholder to sell shares. The condition in the shareholder agreement to use Put option is usually by share price or fair value determined by expert.
Given the equal percentage of shareholding may give rise to circumstances which may lead to a deadlock. To avoid such issues a robust dispute resolution clause that would allow either: