January 30, 2024
1. Decision making & shareholder protection
The board of directors will usually have the day-to-day control of a company, and it can be important that the directors are able to make decisions quickly in order to be flexible and react quickly to the cut and thrust of business. However, there are often some decisions that are reserved for the shareholders to make – typically these will relate to key issues such as any decision to take on significant borrowing, to divest a company of part of its business or assets, or make key appointments in the business.
In addition to setting out a list of matters which are reserved for the shareholders to consider, it is also important to agree the decision-making threshold for such decisions to be taken. For example, do you want some decisions to be taken only if the shareholders holding 60% or more of the shares (or voting rights) vote in favour of it? Do you want to have higher thresholds for some decisions and a lower threshold for others?
There is often a balance to be struck here between:
2. Control the transfer of shares
Most shareholders want to agree a certain level of control over when shares are to be transferred, to whom and for what price. The shareholders’ agreement should deal with not only voluntary transfers of shares (for example, when a shareholder wants to sell their shares) but also with compulsory transfers of shares – i.e. when a shareholder will automatically be deemed to have transferred their shares.
The types of issues commonly considered here include:
3. Manage disputes
Sometimes disputes arise between shareholders – particularly if they cannot agree on the direction of the company. It is therefore prudent to set out what happens in the event of deadlock at board- or shareholder-level.
Ultimately if the shareholders cannot agree on the direction of the company, then one party might want to compel the others to buy them out (or compel another shareholder to sell). It is useful to have a set process in the shareholders’ agreement for dealing with this, including setting out how the sale process is triggered, what the purchase will be, and any payment terms.
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