Get Your Shareholders Agreement (SHA)
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What is a Shareholders Agreement (SHA)?
The Shareholder’s Agreement is meant to protect the interests and assure the correct treatment of a company’s shareholders. In contrast to company by-laws, which are required by the Companies Act, the Shareholder’s Agreement is an optional agreement between part or all of a company’s shareholders.
The Shareholders Agreement is a contractual agreement between the parties that is solely binding on the parties to the Agreement. A well-prepared Shareholders Agreement will assist the parties in maintaining a good relationship.
The following information is included in this Shareholder’s Agreement:
- Details of the Parties entering into this Agreement.
- The total authorised capital of the Company.
- The Shares held by each Shareholder and their percentage of Company ownership.
- The details of the first refusal right by other Shareholders before transferring any Shares.
- “Drag-along rights” and “tag-along rights”
- Provisions related to the Directors’/Board’s rights and obligations.
- Details related to the Company’s management.
- Non-compete clause.
Benefits of Shareholders Agreement (SHA)
Rights Protection
The SHA protects shareholders’ rights.
Role and Responsibilities Clarity
It clearly explains the Shareholders’ various duties and obligations.
Resolution of Disputes
Dispute is minimised through planned dispute resolution methods, saving money, time, and energy.
Minority Shareholder Protection
It acts as a shield to safeguard the interests of minority shareholders from potential market hazards.
Role separation between management and shareholders
It defines and governs the company’s management and shareholders’ relationship.
Only the Parties are bound by it.
As a contractual arrangement between the parties, it is exclusively binding on the parties to the Agreement.
Transfer Restriction
Minority shareholders are prohibited from transferring their shares to competitors or other parties.
Major Clauses of Shareholders Agreement (SHA)
Management and right to appoint a nominee director
While shareholders have no say in day-to-day operations, they have the right to choose a candidate director under the terms of a shareholder's Agreement.
Information rights
The obligation of the Company to provide such information about the Company as a shareholder may seek should be included in a shareholders agreement, particularly for shareholders who are not also directors.
Right of First Refusal
It is usual practice for a shareholders' Agreement to require a departing shareholder to make an offer to the other shareholders at a predetermined price before selling their shares to a third party. With ROFR in place, the Shareholders cannot sell their stake to anybody who isn't a Party to this Agreement without making the acquisition available to the other Parties.
Drag-Along Rights
With this provision, the majority shareholders can force the minority shareholders to sell their shares to an unrelated third party on the same terms as the majority shareholders.
Tag-Along Rights
This provision safeguards the Company's minority stockholders. As a result, if the majority shareholders choose to sell their shares, the minority shareholders can participate in the transaction and sell their shares as well.
Anti-Dilution
This protects the value of the Company's Shares for current shareholders if new Shares are issued in the near future.
Confidentiality
Shareholders privy to nonpublic information about the Company should be required to keep such information secret and prohibited from using it in a way that could hurt the Company or its other shareholders.
Restrictive Covenants
Shareholders may agree to no longer participate in any other businesses in direct competition with the Company they already own under a shareholders' Agreement. Such covenants may be in effect during and beyond when the shareholder holds shares in the Company.
Dispute resolution
Disputes between shareholders can and should be resolved according to the terms of a shareholders' Agreement. This means disagreement cases are taken to court under the appropriate legal system. The Parties may also incorporate an Arbitration Clause in this Agreement. If a dispute emerges between the parties, they might take it to an arbitrator, agreed upon by both sides. The Arbitrator's ruling shall be final and binding on all parties to this Agreement.