The whole essence of a Shareholders Agreement (“SHA”) is to govern the relationship
between shareholders and to serve as reference point in the running of a
business, should a dispute arise.
between shareholders and to serve as reference point in the running of a
business, should a dispute arise.
While drafting, a SHA is not a statutory
requirement for companies, its importance cannot be overemphasized as the
existence of an SHA can save the company a couple of millions in legal fees in
case of disputes, as it is easier to prove the contents of a written executed
agreement than verbally agreed terms.
requirement for companies, its importance cannot be overemphasized as the
existence of an SHA can save the company a couple of millions in legal fees in
case of disputes, as it is easier to prove the contents of a written executed
agreement than verbally agreed terms.
“Generally, a Shareholders’ Agreement will set out matters such as the
way the shares are allocated, what remuneration the shareholders will receive,
what power the directors have in respect of replacing or appointing new
directors, transfer or sale of shares, sale of the company, how new
shareholders are appointed etc. There is no real checklist as to what should be
contained in the Shareholders’ Agreement but it is advisable that anything
agreed between the shareholders’ is documented in the Shareholders’ Agreement.”[1]
way the shares are allocated, what remuneration the shareholders will receive,
what power the directors have in respect of replacing or appointing new
directors, transfer or sale of shares, sale of the company, how new
shareholders are appointed etc. There is no real checklist as to what should be
contained in the Shareholders’ Agreement but it is advisable that anything
agreed between the shareholders’ is documented in the Shareholders’ Agreement.”[1]
Format of a SHA
There is no prescribed format an
SHA should take, but individuals are advised to consult legal practitioners to
draft the SHA which will be tailored to meet the needs of the shareholders as
well as their business needs.
SHA should take, but individuals are advised to consult legal practitioners to
draft the SHA which will be tailored to meet the needs of the shareholders as
well as their business needs.
Contents of a SHA
While the following is not an
exhaustive list of contents of a SHA, a SHA should contain provisions as to the
following:
exhaustive list of contents of a SHA, a SHA should contain provisions as to the
following:
1.
The steps and
action to be taken in the case of death or incapacity of a shareholder;
The steps and
action to be taken in the case of death or incapacity of a shareholder;
2.
Stipulate the
means of dispute resolution amongst the shareholders;
Stipulate the
means of dispute resolution amongst the shareholders;
3.
Set out mode of transferring
shares. What share transfer are allowed? Are shareholders to have first right
of purchase?and
Set out mode of transferring
shares. What share transfer are allowed? Are shareholders to have first right
of purchase?and
4.
Protection for
minority shareholders.
Protection for
minority shareholders.
Finally, while business may incorporate and put on
hold the drafting/execution of a SHA, the ease the SHA brings to the running of
the business and its evidential value cannot be overemphasized.
hold the drafting/execution of a SHA, the ease the SHA brings to the running of
the business and its evidential value cannot be overemphasized.
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[1]http://www.lawplainandsimple.com/legal-guides/article/what-is-a-shareholder-agreement