Share­holder con­tracts

Kapi-Mana News - - OPINION -

Agree­ments can be ‘in­valu­able’ P asks what a Com­pany Share­holder Agree­ment is and what should be in­cluded.

This agree­ment is a con­tract be­tween the share­hold­ers of a com­pany re­gard­ing their deal­ings with one another and the com­pany.

It is not com­pul­sory to have a share­hold­ers’ agree­ment, but it can be in­valu­able for en­abling a com­pany to con­tinue trad­ing af­ter a death, ill­ness or dis­rup­tion, and may also set out a process for deal­ing with com­pli­cated sit­u­a­tions, de­par­tures of one or more share­hold­ers, or dis­putes.

Con­sider what the agree­ment should say about the fol­low­ing is­sues:

Di­rec­tors: Who? How many? Who hires and fires them? What are their re­spon­si­bil­i­ties and obli­ga­tions?

Man­age­ment: On a day-to-day ba­sis? What about fi­nan­cial and other re­port­ing?

Re­mu­ner­a­tion: Will share­hold­ers/di­rec­tors be paid? What about other ben­e­fits?

In­for­ma­tion about shares and share­hold­ers: Who can be a share­holder? How many shares? Are there dif­fer­ent classes of shares with dif­fer­ent vot­ing rights?

Pur­chase of shares: Do shares have to be paid for im­me­di­ately? How can they be paid?

Con­trol of share­hold­ers: Are there de­ci­sions that re­quire unan­i­mous share­holder sup­port? For ex­am­ple, sale of the busi­ness, new share­hold­ers, hir­ing staff, ma­jor pur­chases?

Roles of share­hold­ers: Do share­hold­ers have dif­fer­ent roles and re­spon­si­bil­i­ties within the com­pany? If so, what are they?

Meet­ings: How of­ten? Quo­rum? Notices?

Ex­it­ing the com­pany: Can a share­holder be com­pul­so­rily bought out? If so, when? Can a share­holder re­quire oth­ers to buy him/her out? If so, when? What is the process if all share­hold­ers want out?

Pre-emp­tive rights of share­hold­ers: If a share­holder wants to sell shares, must they be of­fered to the other share­hold­ers first?

Drag along/Tag along: Can a ma­jor­ity share­holder who wishes to sell his/ her shares force the mi­nor­ity share­holder(s) to also sell their shares (‘‘ drag along’’)? If a ma­jor­ity share­holder is sell­ing his/her shares, can a mi­nor­ity share­holder(s) re­quire the ma­jor­ity share­holder to also ne­go­ti­ate the sale of the mi­nor­ity share­holder’s shares (‘‘tag along’’)?

Val­u­a­tion of shares: How will shares be val­ued? Will it be the same in all cir­cum­stances? For ex­am­ple, if a share­holder wishes to sell up or in the event of the death/ dis­abil­ity of a share­holder?

New share­hold­ers: How are new share­hold­ers in­tro­duced?

Dead­locks: If shares are held evenly, what is the process for deal­ing with dead­locks?

Em­ployee share­hold­ers: Will the com­pany is­sue shares to em­ploy­ees?

Will there be a dif­fer­ent class of shares for em­ploy­ees? What hap­pens if an em­ploy­ee­share­holder is no longer em­ployed by the com­pany?

Fam­ily suc­ces­sion: Are fam­ily mem­bers en­ti­tled to ac­quire shares in the busi­ness af­ter the death of their par­ent/sib­ling?

Re­straint of trade: Are de­part­ing share­hold­ers sub­ject to a re­straint of trade? If so, on what terms?

Non-com­pe­ti­tion: Are share­hold­ers pre­vented from car­ry­ing on busi­ness in com­pe­ti­tion with the com­pany?

Dis­putes: What process will be fol­lowed if there is a dis­pute? At what point in a dis­pute should/ can the agree­ment be ter­mi­nated?

Dis­tri­bu­tions: When/how will div­i­dends be paid? Must a cer­tain per­cent­age of profit stay in the com­pany?

Fund­ing: How will cap­i­tal be raised? How else will the com­pany be funded? What is the na­ture and amount of fi­nan­cial con­tri­bu­tions by the share­hold­ers?

Insurance: Will the com­pany ( or in­di­vid­ual share­hold­ers) hold an insurance pol­icy to buy the shares in the event of death or se­ri­ous in­jury of another share­holder? If not, is there a pro­vi­sion for the com­pany to pay the fam­ily of the share­holder to ac­quire the shares?

Con­fi­den­tial­ity: Will share­hold­ers be sub­ject to con­fi­den­tial­ity re­stric­tions?

In­tel­lec­tual prop­erty: Does the com­pany own all its in­tel­lec­tual prop­erty?

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