A Shareholders’ Agreement is a private, legally binding contract between the shareholders of a company. It governs how the company is run, decisions are made, and shares can be transferred. Unlike a company’s articles of association, it is not a public document and provides more detailed control over shareholder relationships and company operations.
This section includes the names and details of all shareholders involved, and may also include the company itself as a party.
This section outlines the classes of shares (e.g., ordinary, preference shares), ownership percentages, and the rights attached to different classes (e.g., voting rights, dividend rights).
This section specifies how directors are appointed or removed, the voting thresholds for key decisions (majority, supermajority, or unanimous), and matters reserved for shareholder consent (e.g., issuing new shares, large expenditures).
This section outlines when and how dividends will be paid, whether dividends are mandatory or at the discretion of the board.
This section restricts the transfer of shares (e.g., right of first refusal, tag-along, drag-along), and provides procedures for buying out a shareholder who wants to exit. It also includes a valuation method for share transfers (e.g., independent valuation).
This section outlines what happens if a shareholder dies, becomes insolvent, or wants to leave. It includes provisions for an eventual sale, IPO, or merger.
This section provides measures to protect the interests of minority shareholders.
• Special rights or protections for minority shareholders, such as veto rights or board seats, are often included in a shareholders’ agreement.
Dispute resolution mechanisms, including mediation and arbitration, are also typically provided to resolve shareholder disputes. Deadlock resolution processes, such as buy-sell clauses and rotating chairman votes, are also included to ensure that disagreements can be resolved.
Confidentiality obligations are also included to protect sensitive company information from disclosure. Non-compete and non-solicitation clauses are often included to prevent shareholders from competing with the business or poaching clients or employees.
A Shareholders’ Agreement is a private, legally binding contract between the shareholders of a company. It governs how the company is run, decisions are made, and shares can be transferred. Unlike a company’s articles of association, it is not a public document and provides more detailed control over shareholder relationships and company operations.
A Shareholders’ Agreement is a private, legally binding contract between the shareholders of a company. It governs how the company is run, decisions are made, and shares can be transferred. Unlike a company’s articles of association, it is not a public document and provides more detailed control over shareholder relationships and company operations.
Amendments to the agreement are also specified, often requiring unanimous or supermajority consent.
A shareholders’ agreement is important because it reduces the risk of disputes by setting clear expectations and obligations. It provides structure to company governance beyond what is outlined in the articles of association. It also protects investments, especially for minority shareholders, and provides exit options for founders, investors, and other stakeholders.
Before drafting a shareholders’ agreement, it’s important to consider the parties involved, their business goals, how control should be managed, what happens if things go wrong, and whether there is alignment on growth, dividends, or reinvestment. Legal counsel should also be involved to ensure that the agreement is customised and enforceable.