What is a shareholders’ agreement? It is a shareholders’ agreement that constitutes a contract among the shareholders of a company in which they clearly detail the rights and obligations of shareholders and the methods of managing the company.
Why is a shareholders’ agreement important? It explains key issues in decision-making, ownership rights, dividend distribution, and the transfer of shares that can prevent shareholders from engaging in conflicts.
Who should sign a shareholders’ agreement? All shareholders in the company, including any potential investors, should sign the agreement.
What are the key components of a shareholders’ agreement? Key components often include governance structure, share transfer restrictions, dispute resolution methods, dividend policies, and rights of first refusal.
A shareholders’ agreement can override certain of a company’s articles of association. Sometimes, it can change or add to articles but should not conflict with the articles.
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What is the role of a shareholder in a company? He/she owns some of the company and has voting power on most matters of importance, gets to enjoy some of its dividends, and potentially determines the direction which the business takes.
A shareholders’ agreement usually spells out rules for share transfer, which often include the right of first refusal, prohibition against selling shares to outsiders, and procedures for valuing shares.
What is a right of first refusal in a shareholders’ agreement? A right of first refusal grants existing shareholders the opportunity to purchase shares from another shareholder before the other shareholder can offer those shares to an outsider.
What is a drag-along right? A drag-along right is the right by majority shareholders to force minority shareholders to sell if the majority wish to sell their company.
What is a tag-along right? A tag-along right is a minority shareholder’s protection in selling the shares at the same terms offered to the majority shareholder upon selling.
Can shareholders’ agreements be amended? Yes, but amendments usually require the approval of a specified percentage of shareholders, as stipulated in the original agreement.
What happens if there is a deadlock between shareholders? A shareholders’ agreement often includes a dispute resolution mechanism, such as mediation, arbitration, or buy-sell provisions, to resolve deadlocks.
Buy-sell provisions are the conditions under which shareholders can buy out others or be bought out, often triggered by death, disability, or disagreements.
Can a shareholders’ agreement include non-compete clauses? Yes, many agreements include non-compete clauses to prevent shareholders from starting or investing in competing businesses.
What is the governance structure in a shareholders’ agreement? The governance structure defines how the company will be managed, which basically comes from: board of directors composition and powers; shareholder meetings; procedure related to voting.
How can a shareholders’ agreement protect minority shareholders? It can include veto rights, tag along rights, and other specific protective factors upon merger or sale so that minority shareholders are dealt with fairly.
It can be used to prevent hostile takeovers by including provisions such as super-majority voting, restrictions on share transfers, and other protections against hostile takeovers.
How long does a shareholders’ agreement last? The agreement can last for a certain period of time, and it usually lasts until a certain event, like the sale of the company, occurs.
What if a shareholder breaks the agreement? A shareholders’ agreement breach may result in a lawsuit, sale of shares, damages, or other remedies the parties agreed on in the contract.
Can a shareholders’ agreement be enforced? Absolutely, as it is a binding contract. In case a party fails to uphold the agreement, the parties may resort to legal action to enforce its terms.
