What Are Shareholders Agreements

A SHA also often grants a right of pre-emption to shareholders, so that if the company does not or only partially exercise its repurchase rights, non-ceding shareholders have the primary right to acquire those shares in proportion to their ownership of existing shares. A SHA should clearly state the detailed mechanism by which shareholders exercise their pre-reference rights and how the shares acquired in this way must be paid. In the case of a voluntary transfer, unsold shareholders may have the opportunity to acquire more than their proportionate share shares if one of the other unsold shareholders does not exercise its prior decision-making rights. However, in the case of an automatic transfer, shareholders who do not sell generally have to acquire all the “offered” shares. If, for whatever reason, unsold shareholders are not able to fully exercise their rights of first refusal, the company should repurchase the shares, otherwise those shares could enter unwanted hands. The SHA may indicate that, in this case, the shares are paid in installments over a specified period of time. These rights give shareholders the right to maintain their current shareholding and avoid dilution. Among the most important factors to be taken into account in granting such rights are the minimum threshold of ownership, the issuance of securities that do not trigger pre-emption rights (i.e. shares of certain percentages or classes) and the impact of the law on the founders and their departure from the company. A shareholders` pact focuses on the coordination of the shares as well as the conditions and guarantees of these shares. Its purpose is to define the rights, duties and obligations of the company, shareholders and their relationships.

There are also some risks that may be related to the implementation of a shareholder pact in some countries. The right of pre-emption, the simplest and most common form of percentage dilution protection, gives shareholders the right, but not the obligation to acquire in the future in proportion to new shares of a company in order to maintain its proportionate ownership. This right may apply to all classes of shares or only to certain classes of shares. Shareholder agreements, like other contracts, are governed by state laws. The agreement should contain a declaration that it must be regulated and enforced in accordance with state laws, regardless of which state needs it. In addition, a majority shareholder wants to prevent minority shareholders from disclosing confidential information to competitors or from creating competing companies, each of which can be included in the agreement as a provision. A well-developed shareholder pact can offer guarantees to majority shareholders. Call options in the SHAs haunt shareholders or the entity to compel a shareholder to sell its shares to them or the company at a certain price or a predetermined formula. A call option includes triggers other than automatic transmissions and can be an effective way to remove a shareholder from a company.