A shareholders agreement usually will cover a range of areas relevant to the overall operation and ownership of the company, such as
i.The nature and objectives of the business ii.
How decisions will be made iii.
When shares in the company can be issued or sold iv.
How disputes will be resolved.
While it’s always better to have a bespoke Agreement based on the requirements of a company and its shareholders, a Shareholders Agreement should typically include:
i The management and operation of the company.
ii The roles of any shareholders who are directors.
iii Protection against deadlock.
iv The transfer of shares and pre-emption rights.
v Drag and tag rights.
vi The calculation and payment of dividends.
vii Restrictions on shareholders
viii Minority protection provisions.
The drag along clause requires the minor to sell their shares, while the tag along clause requires the majority shareholder to allow the minor to join in on a sale.
Because shareholders decide the content of the shareholders agreement, they can include a clause that outlines how the agreement can be amended in the future. Typically, such a clause would only allow for the agreement to be amended if all shareholders consent to that amendment
Pre-emption right is a right of first refusal to buy shares being sold by an existing shareholder of the company. A Shareholders Agreement will often provide pre-emption rights so that if a shareholder is selling their shares, the remaining shareholders have the first opportunity to purchase them (typically on a proportionate/pro-rata basis).
Minority protection provisions give minority shareholders an effective right to have a say in certain fundamental decisions relating to the company which have the potential to prejudice/dilute a minority shareholder’s interest/stake in the company (such as changes to share rights, issuing shares, significant corporate changes, significant transactions, incurring borrowings etc). These rights are very important and prevent minority shareholders being discriminated against and prejudiced by the majority.
