Shareholder agreements

While every agreement is different, some of the most common issues addressed by the shareholders’ agreements are:

• whether there are any decisions of such fundamental importance to the company that they ought to require unanimous shareholder consent;
• whether there are transactions for which prior shareholder approval ought to be sought before a director can commit to them;
• whether the directors should be subject to non-compete provisions while working for the company and for a set period following their departure;
• whether director-shareholders should be obliged to sell their shares if they choose to leave the company or are dismissed;
• whether the shareholders should have the right to remove a director who is under-performing;
• whether the shareholders should be subject to an obligation of confidentiality and any other duties to ensure decisions are taken for the benefit of the company and its members as a whole;
• what happens where a deadlock situation occurs — should one person have a casting vote or should the matter be determined by an independent arbiter?
• when can a dividend be paid and how it should be calculated;
• in what circumstances should it be possible to call on the shareholders to increase their capital contribution;
• in what circumstances can the company make a fresh issue of shares and should there be an obligation to issue to existing shareholders first;
• what happens where a shareholder wants to exit the company — should the company or other members have a right of first refusal and, if not, should restrictions be imposed on who the outgoing shareholder can sell to;
• should an outgoing shareholder be subject to post-departure restrictions;
• how should an exiting member’s shares be valued and should there be a discount applied to the shares of minority shareholders or those who leave under a cloud;
• should there be a right to expel a shareholder proved to be guilty of serious misconduct?
• what happens where a shareholder dies or is made bankrupt;
• what happens if the majority shareholder wants to sell the company — should they be able to force the minority shareholders to agree under a drag-along provision;
• what happens if the majority shareholder is asked to sell their interest alone — should they be obliged to make it a condition of the sale that the interests of minority shareholders are acquired too pursuant to a tag-along obligation;
• whether there should be restrictions on the ability of members to force the company into liquidation, save for in the case of genuine insolvency;
• whether there should be safeguards build in to prevent the interests of minority shareholders being ignored; and
• how disputes between members and directors ought to be resolved.