What to Look for in a Shareholders Agreement
A shareholders` agreement is a binding contract concluded between the shareholders of a company in order to define their respective rights and rights and to organize the management of the company. These clauses are introduced to safeguard the interests of minority shareholders. In general, minority shareholders cannot block the passage of ordinary resolutions, such as the appointment and dismissal of board members. In other words, a minority shareholder may own 49% of the shares, but still does not have the power to influence the composition of the board of directors. To mitigate this rigidity, the shareholders` agreement may include a clause allowing a minority shareholder to appoint or remove a director with a minimum percentage of the share. Alternatively, shareholders can opt for a super-majority clause that states that some important decisions can only be made with the consent of a larger number of shareholders, for example 75%. This prevents minority shareholder votes from being buried and gives them more bargaining power in the company. If you are considering creating your own shareholders` agreement, you should ask yourself the following questions: The shareholders` agreement serves not only to protect the shareholders, but also the company. This clause will establish rules to protect the company, which could include restricting shareholder participation in competition or restricting shareholder interaction with customers. Directors run the business. They are accountable to the shareholders.
Thus, your agreement can set the role that an administrator can play or the limits of his authority. A member can be as active as they want, from a director to an active supporter giving advice to a „dormant“ lender offering only financing. Your agreement should reflect what happens when a member wants to be more or less active in the day-to-day management of the business. Shareholder agreements differ from articles of association. Although the articles of association are binding and describe the regulation of the company`s business activities, a shareholders` agreement is optional. This document is often written by and for shareholders and describes certain rights and obligations. This can be very useful if a company has a small number of active shareholders. Feel free to consult a sample agreement, albeit formulated in an unprofessional manner, for some specific details. This will at least make it easier for you to get started. DO NOT rely solely on the advice of your lawyer. Lawyers have their biases and can point you in a direction that is not in your best interest.
(Note – are they acting for you personally or for the company or for other shareholders?) Talk to other entrepreneurs who participated in this exercise. Your experience can be worth many legal lunches! Payment is an obvious, perhaps controversial area. Salaries and bonuses reduce the profit that could be paid to members in the form of a dividend. Although the payment of dividends is usually approved by the members, the payment of salaries and bonuses is often approved by the directors alone. If some directors are also shareholders, there is an imbalance of power – some shareholders can decide on salary levels and bonuses that directly affect the amount of dividends that can be paid to others or, of course, the remaining cash in the company. Actions can change hands accidentally (for example. B, in the event of the death or bankruptcy of a shareholder) or intentionally (e.g. B for personal use, after litigation or injury, or to repay a debt elsewhere). Other shareholders may control to some extent to whom the shares are transferred and what role the new member plays in the company by determining the rights and powers in the transfer. However, provisions preventing transfer to certain categories of persons can be controversial. Our last article dealt with why and when a shareholders` agreement should be used: the methods by which shareholders can control a company and the advantages of a shareholders` agreement over the use of different classes of shares. If the business is just starting out, it can be easy to overlook the financial considerations of the shareholders` agreement.
You may feel like everyone is working hard and contributing their fair share. While this may be the case at the beginning of the business relationship, it is not always the case. It is important to determine the amount of money that each shareholder must first invest in the company. An alternative is simply to make a declaration of intent. This has no legally binding force, except perhaps in a supporting role, but it is a reminder that there is a timetable. .