What is included in a shareholders’ agreement

What is included in a shareholders’ agreement

A shareholders’ agreement contains various sections that vary from company to company depending on their requirements.

Management and operation of a company

The following clauses are described in this part of the agreement:

  • Venue and number of the board meeting.
  • Appointing, removing, and replacing investor directors.
  • Board meetings and proceedings.
  • Notice of the board meeting and its content.
  • The chairman of the board and the nomination of alternate directors.
  • Decision-making procedures and permitted means of contemporaneous communication for participation in board meetings.

Involvement of shareholders

In such circumstances, the consent of shareholders is required. Shareholder approval will be required for the following matters:

  • When it is necessary to alter the company’s articles of association.
  • When declaring bankruptcy or amalgamating.
  • When dissolving the company and preparing a financial statement.

Liabilities of a shareholder

A shareholders’ agreement describes the liabilities of each shareholder because one of the reasons for choosing a company is limited liability, hence the separation of the company from its shareholders. Each shareholder carries the following liabilities:

  • Shareholders are not responsible for the company’s actions.
  • Whenever a company is limited by guarantee, the shareholder is only liable for the amount he guaranteed.
  • As far as their shares are concerned, shareholders are only liable for the unpaid share capital.

Protection of minority shareholders

Since the Companies Act, 2013, minority shareholders’ rights have been given importance.

  • The requirement to appoint a director from a small shareholder group.
  • Right to sue the company and its auditors as part of a class action lawsuit.
  • Appeals for mismanagement and abuse should be made to the board.

Amendments and Terminations

It is important for shareholders’ agreements to specify how an amendment to the shareholders’ agreement will be handled, as well as what causes the termination of a company.

What is the purpose of a Shareholders’ Agreement?

  • Gaining Control: Shareholder agreements provide shareholders with legal ties to the company, including the ability to set or modify rules and guidelines.
  • Ensure privacy: Shareholders’ agreements are private, while articles of association are public.
  • Protect position: Shareholders’ agreements ensure that shareholders’ positions or roles within a company are protected.
  • It protects smaller shareholders: There may be majority and minority shareholders in a company. Within a company, a stockholders’ agreement defines the role of minority stockholders and protects their rights.
  • Purchase of Shares: Minority shareholders will be able to purchase shares from other shareholders, just like a majority shareholder.

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