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29 juni 2021

The shareholders' agreement: 5 points of importance

A shareholders’ agreement (‘SHA’) may prevent discussions or conflicts between shareholders internally and also between the shareholders and the company. It is not mandatory to draw up a SHA, but this is highly recommended in case the shares are held by more than one shareholder. Freedom of contract is therefore largely paramount. In this blog we cover 5 specific points of attention regarding the shareholders' agreement.

#1 Benefits of the Shareholders' Agreement

In the case a company has more than one shareholder, it is advisable to draw up a shareholders’ agreement . Especially in respect of a joint venture with a 50/50 ratio. In the event of a dispute, there may soon be a deadlock situation that could harm or damage the company. The commitment to a SHA can prevent discussions and conflicts, as shareholders are forced to think about and agree on a number of matters in advance regarding their cooperation. In addition, you can address your fellow shareholders if they do not comply with the agreement. Moreover, the agreement is (largely) flexible and can be changed by agreement of all shareholders. It is also possible to keep the agreement secret, unlike the articles of association.

#2 Parts of the Shareholders' Agreement

The SHA provides clarity on the rights and obligations of the shareholders and the possible consequences for their non-compliance. Important topics that are usually included in a SHA are:

  • a list of decisions/topics requiring a larger majority than usual;
  • a list of board decisions requiring shareholders’ approval;
  • an exit scheme;
  • tag/drag along provisions;
  • valuation bases for the shares;
  • agreements on profit distribution;
  • a non-compete and/or relationship clause;
  • a confidentiality clause;
  • and any chain clauses for subsequent and acceding shareholders.

#3 Beware of model agreements

Every company has its own specific points of attention and not every collaboration is the same. Take a critical look at what you do and do not include in the agreement. Look at your own company and situation and not just the standard agreements and parts thereof and boilerplate clauses. Be careful when using standard shareholder agreements, model agreements and templates. If in doubt, always have your agreement checked by a lawyer.

#4 Drafting the shareholders' agreement

In many cases, a tailor-made agreement is therefore wise and desireable. Moreover, the agreement is usually an important document with a lot of arrangements in it. Therefore, take the time to draw up the agreement and have the document checked by a lawyer. Especially if standard arrangements, such as the approval scheme when transferring shares, are not the best solution for your company or situation.

#5 Consequences of non-compliance with agreements

A SHA is legally an agreement like (almost) any other. This means that the agreement must be respected. Failure to comply with the arrangements under the agreement may have far-reaching consequences, including the obligation to offer the shares to the co-shareholder(s). However, the parties are free to regulate the consequences of a breach of contract under the agreement itself.

Contact

The lawyers of La Gro Geelkerken are an important source of information for entrepreneurs, shareholders and directors. The corporate law team focuses on your future and can be your discussion and sparring partner when making (daily) decisions with legal implications.

Do you need advice on this topic? Please contact Joost Vrancken Peeters on +31 620210657 or jvp@lgga.nl and Mathijs Arts on +31 614338775 or m.arts@lgga.nl.