The Shareholders Agreement | Eberechi Okoh
“They criticize me for
harping on the obvious; if all the folks in the United States would do the few
simple things they know they ought to do, most of our big problems would take
care of themselves.” Calvin
Coolidge
harping on the obvious; if all the folks in the United States would do the few
simple things they know they ought to do, most of our big problems would take
care of themselves.” Calvin
Coolidge
A shareholders’ agreement
(“SHA”) as the name implies is an agreement between shareholders. The practice
in Nigeria is for this agreement to be entered into as a pre-incorporation or a
post-incorporation contract. Plainly speaking, every time two or more persons
agree to incorporate a company, a SHA is born, albeit oral. As obvious as its
relevance appears to be, many shareholders proceed to incorporate companies
with their partners without reducing terms into writing and ne’er a SHA. On the
assumption that the memorandum and articles of association (M & A)
sufficiently protects their interest, shareholders proceed to execute more
complex documents with third parties, even while the company has no code
guiding the shareholders’ business relations. Thus, a very common cause
of action in various Nigerian courts is the breach of oral pre- incorporation
contracts amongst shareholders. Unfortunately for many, with nothing more than
the M & A, they are forced to compensate their fellow shareholders who may
have contributed nothing beyond their signature at the time of the company
registration.
(“SHA”) as the name implies is an agreement between shareholders. The practice
in Nigeria is for this agreement to be entered into as a pre-incorporation or a
post-incorporation contract. Plainly speaking, every time two or more persons
agree to incorporate a company, a SHA is born, albeit oral. As obvious as its
relevance appears to be, many shareholders proceed to incorporate companies
with their partners without reducing terms into writing and ne’er a SHA. On the
assumption that the memorandum and articles of association (M & A)
sufficiently protects their interest, shareholders proceed to execute more
complex documents with third parties, even while the company has no code
guiding the shareholders’ business relations. Thus, a very common cause
of action in various Nigerian courts is the breach of oral pre- incorporation
contracts amongst shareholders. Unfortunately for many, with nothing more than
the M & A, they are forced to compensate their fellow shareholders who may
have contributed nothing beyond their signature at the time of the company
registration.
In the past, lawyers would
populate the M & A with as many provisions as would ensure that interests
of the subscribers to the M & A were protected. However, the Corporate Affairs
Commission has since stopped receiving bulky M & A for registration. As
such, the SHA becomes a veritable tool to protect each shareholder’s business
interest within the company and to regulate the company’s dealings with third
parties.
populate the M & A with as many provisions as would ensure that interests
of the subscribers to the M & A were protected. However, the Corporate Affairs
Commission has since stopped receiving bulky M & A for registration. As
such, the SHA becomes a veritable tool to protect each shareholder’s business
interest within the company and to regulate the company’s dealings with third
parties.
A good SHA should be
executed by, and between the shareholders and should name the company as a
party. Matters relating to consideration, obligations of parties, transfer of
shares, pre-emption rights, dividend policy, fair value, tag along drag along
provisions and voting should be clearly dealt with and provided for. The
SHA can also be used to amplify information contained in the M & A.
executed by, and between the shareholders and should name the company as a
party. Matters relating to consideration, obligations of parties, transfer of
shares, pre-emption rights, dividend policy, fair value, tag along drag along
provisions and voting should be clearly dealt with and provided for. The
SHA can also be used to amplify information contained in the M & A.
Clearly, the SHA is
particularly useful to small companies, unquoted companies, companies set up as
special purpose vehicles and companies whose shareholders generally revolve
around a definite circle. It is therefore pertinent that every shareholder
protects its business interest today by executing a Shareholders’ Agreement.
particularly useful to small companies, unquoted companies, companies set up as
special purpose vehicles and companies whose shareholders generally revolve
around a definite circle. It is therefore pertinent that every shareholder
protects its business interest today by executing a Shareholders’ Agreement.
Senior Associate at
Streamsowers & Kohn
Streamsowers & Kohn
Eberechi May Okoh is a highly motivated lawyer with
over ten years hands on experience spanning litigation and commercial law
practice.
over ten years hands on experience spanning litigation and commercial law
practice.
Ed’s Note – This article was originally published here.
