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4 JUN 2021
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5:51 AM

What’s Normally Included in a Shareholder’s Agreement?

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A shareholder agreement is a contract between parties of a business which governs and regulates the relationship between shareholders.

A shareholder agreement is recommended to be drafted and signed before setting up of a company or starting a business. Within the shareholders’ agreement, the way in which the business should be run and managed and resolutions when dispute arise would be stated.

Here are some usual matters that will be included in a shareholders’ agreement:-

1. Paid-Up Capital and the Shareholdings

  • Paid-up capital is the start-up funds of the Company. When starting a business, the funds will be contributed by the shareholders and the shareholdings will usually be based on the amount contributed.

2. Purpose of the Company

  • Objective of the Company such as the business nature, the way in which paid-up capital should be used or investments of the Company will be clearly stated

3. Appointment of Director and Director of the Company

  • The agreement should specify the number of Directors and the rights given for Shareholders to nominate and appoint Director and provisions to avoid Director appointed being removed by another shareholder.

4. Management of the Company

  • The shareholders’ agreement should specify how the company would be managed and the types of decisions which require either a majority (50%), special (75%), unanimous (100%) or other approvals.

5. Transfers of shares

  • One of the most important clauses that should be stated in the Shareholders’ Agreement. Whereby under the circumstances that the shareholders wanted to sell their shares, should the offer be made to the existing shareholders before they can offer to 3rd party, what is the value of the shares and so on should be stated in the agreements to protect the rights of all the shareholders of the company.

6. Deadlocks and disputes

  • The agreement should set out the consequences if there are deadlock or a disputes that cannot be resolved. It should state the provision for a party to exit after certain dispute events.

It is advisable to get assistance from a Corporate Lawyer to draft a shareholder agreement as the shareholder agreement should be customized to cater to the shareholders’ needs and company operations.