Shareholders Agreements
What is a shareholder agreement?
A shareholders’ agreement is a contract between some or all of the shareholders of a company. It regulates the relationship between the shareholders, the management of the company, the appointment of directors, and the protection of shareholders. It can also provide clarity on how certain decisions should be made and how specific situations should be handled within the company.
Some key provisions often found in a shareholders’ agreement include:
Share Sales and Transfers: these provisions can restrict the sale or transfer of shares without first offering them to existing shareholders (often referred to as a “right of first refusal”). This can help ensure that shares don’t end up in the hands of unwanted third parties.
Issuance of New Shares: this section can dictate how new shares can be issued and can also provide pre-emptive rights for existing shareholders to purchase new shares before they are offered to outsiders.
Dividend Distribution: outlines the company’s dividend policy or the manner in which profits will be distributed.
Management and Appointment of Directors: specifies how the company will be managed and how directors will be appointed. This can ensure that key shareholders have representation on the board.
Decision Making: some decisions may require a higher threshold of approval than other’s (eg: changing the company’s business, taking on significant debt, or selling major assets). This section outlines what percentage of shareholder agreement is needed for various types of decisions.
Protection of Minority Shareholders: provisions to protect minority shareholders from decisions that might disproportionately benefit the majority.
Drag-Along and Tag-Along Rights: “Drag-along” rights allow majority shareholders to force minority shareholders to join in the sale of a company, ensuring that buyer can obtain 100% of a company. “Tag-along” rights allow minority shareholders to join a transaction and sell their minority stake if a majority shareholder sells theirs.
The presence of a shareholders’ agreement can be essential for the smooth operation of a company, especially as it grows and brings on more shareholders. It helps to prevent potential disputes by providing clear procedures and rights for all involved.
Inkling Law can assist in preparing and drafting a shareholders’ agreement designed to fulfil your needs.