Shareholders’ agreements can cover and expand upon areas of corporate governance and company law to ensure the smooth and effective running of your company.
Shareholders’ agreements can help you in the following ways:
Direction – allow the majority of your shareholders to have a say in the direction and management of the business (most commonly done through mechanisms which require the majority of shareholders to give their written approval before a specific action can be undertaken by the company);
Protection – afford protection to minority shareholders and majority shareholders through provisions known as drag along (if a majority of the shareholders agree to sell their shares, they can compel the remaining minority shareholders to also sell their shares, ensuring that a prospective buyer can acquire 100% of the company) and tag along rights (minority shareholders can require a majority selling shareholder to compel the buyer to extend its offer to all shareholders of the company);
Control – give shareholders the right to first refusal to any share transfer or issue of new shares so as to avoid having their shares diluted and / or having unknown third parties becoming shareholders in smaller / family-run companies;
Safety – impose trading restrictions on current and past shareholders to ensure that no shareholder can carry out or enter into a business which would be in competition with the company’s business;
Incentive – require employees who are also shareholders to sell their shares for a specified amount should they cease to be employees;
Certainty – detail the process to be undertaken in unexpected situations concerning the shareholders (such as the death of a shareholder); and
Valuation – provide a mechanism for determining the value of the shares in the event of a share transfer.
