The following issues can be governed by shareholder agreements to ensure contractual certainty amongst shareholders:
Decision-Making Stalled – The shareholder’s agreement may address how to resolve deadlocks in decision-making at the level of the board of a firm or between the shareholders. For example, it may require that the deadlock be referred to arbitration or defer certain board decisions to a meeting of shareholders. Preemptions and share transfer Shareholders’ agreements may specify the selling, transferring, and disposing of shares and shareholder claims against the corporation. The shares will typically be offered to current shareholders initially. If a shareholder decides to sell their shares, they can also stipulate additional terms, such as a requirement that the buyer releases the seller from any surety obligations on behalf of the company or, in the event that the seller is unable to obtain the release from the surety, that the buyer indemnify the seller from any claims arising from the suretyship.
Forcing or Viewing Sales – If a shareholder no longer wishes for that shareholder to maintain its interest in the company, for example, when a shareholder who is a company is no longer controlled by certain shareholders, or if a shareholder is unable to provide loan financing or declines to sign a surety on the company’s behalf when required by law, then a shareholder may be deemed to offer their shares to the remaining shareholders.
Tag-along and Come-along Clauses – If the majority shareholder(s), who typically own more than 50% of the company’s shares, receive an offer from a third party to buy their shares, they may desire to require the remaining shareholders to sell their shares. The third party’s offer will be the same for the shares owned by the majority shareholders as it will be for the shares owned by the remaining owners. The phrase “come along clause” describes this. This makes it possible for the majority shareholders to sell the entire company if necessary. Minority shareholders may choose to accompany the sale of a majority shareholder’s shares of the company under the terms of a “tag along” clause. The remaining shareholders may demand, under the conditions of a “tag along clause,” that the third party also acquire their shares on the same terms if, for example, shareholders holding 60% of the issued shares in the company receive an offer for their shares from a third party.
Put Choice – A shareholder could want to keep the option of selling their firm’s shares to another stakeholder. The specifics of this contractual right and how it is to be used are covered by the Put and Call Option Clause. financing for the business The Shareholders Agreement can specify how the parties wish to finance the company, including whether they will be required to do so through their own resources, suretyships, or approaches to financial institutions for funding. It can also specify how shareholder loans to the company will be handled and when these loans are to be repaid.
Dividends – If Section 46 of the Companies Act 2008 has been complied with, the shareholder agreement may specify a distribution policy for the company. Shareholders’ Agreement and MOI The shareholder agreement’s clauses must not contradict the company’s memorandum of incorporation. The Memorandum of Incorporation may contain provisions relating to shareholders’ rights and obligations, rather than a separate shareholders agreement; however, the Memorandum of Incorporation is filed with CIPC and may be available to the public, whereas a shareholder’s agreement is not filed with CIPC.
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