It is worth drawing up a shareholders' agreement when there is more than one shareholder in the company
What is a shareholders' agreement?
A shareholders' agreement is an agreement between the owners of a limited company. It sets out the main rules of the game for running a business and ensures that shareholders have the main rights and are treated equally. The shareholders' agreement also plays an important role in ensuring the company's ability to operate in a crisis situation and clarifies the conditions in the event of a shareholder leaving the company.
Compared to the Articles of Association, the advantages of a shareholders' agreement are its informality, flexibility and non-public nature. As a result, the shareholders' agreement can be very effective in determining matters of particular importance for the company's operating conditions.
What does the shareholders' agreement contain?
The content of the shareholders' agreement includes provisions on the operation of the company, the rights and obligations of the shareholders. Other important issues are the rules of the game relating to the company's decision-making and the transfer of shares. Often, conditions such as non-competition, confidentiality and IPR are also taken into account.
Equal treatment of shareholders can also be ensured by so-called tag-along and drag-along conditions, which guarantee equality in e.g. takeover situations. These conditions anticipate the possible sale of the entire share capital of the company to a new owner.
Decision-making in the company and the shareholders' agreement
The shareholders and the CEO are the cornerstone of the company. You need to be able to decide effectively between them. They must be able to resolve disagreements without jeopardising the whole business. A good shareholders' agreement therefore contains clear provisions on decision-making in the company.
The shareholders' agreement often stipulates, among other things, the matters that can be agreed on by a simple vote and those that require unanimous or, for example, 2/3 qualified majority voting. For some companies it is important that, for example, loans of more than €5,000 cannot be taken out without the agreement of all shareholders, while in other companies all decisions worth less than €100,000 are to be taken directly by the board of directors.
It is also important to ensure that all shareholders or groups of shareholders have the necessary influence in the company. This can be achieved, for example, by a right to a seat on the board of directors.
To ensure equal treatment of shareholders, it is a good idea to consider in advance, the conditions under which the business can be sold or under which it is possible to undertake large-scale expansion projects.
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A company can have many different owners
Each company's ownership situation is unique.The shareholders and founders of a company may include top management, investors, employees, other companies, holding companies or others. Each group of shareholders has a very individual relationship with the company and their interests may vary widely.
In the start-up world, angel investors seek hard growth in exchange for risk financing, while the employee who becomes a shareholder through an option scheme is interested in the added value of the shareholding in terms of total revenue. For the business angel, the company's interest is to raise the capital required for growth, while for the employee shareholder it is to commit the labour required by the company for the long term.
A good shareholders' agreement defines the different types of shares as clear entities.
Why enter into a shareholders' agreement?
A shareholders' agreement is recommended whenever there is more than one shareholder.
A good shareholders' agreement sets out the purpose and background of the company, the rights and responsibilities of shareholders, the governance of the company, the exit from the company, the transfer of shareholders and the rules of the game relating to matters affecting the company's decision-making in the short and long term.
A lawyer's tip:
Ask yourself, on what terms are you willing to build and invest in a business that is designed to guarantee your financial future?
”This is an answer that a good shareholders” agreement is clearly capable of responding to."
Article written by a lawyer Tuula Rainto, Amos Attorneys at Law.
Amos has drafted and helped to interpret numerous shareholder agreements in the private equity field. We provide services in Finnish and English.
You can always call Amos for a free consultation. p.010 2995 090
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