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.
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.
“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.”
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.
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:
1. 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;
3. 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.
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.
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