Corporate Shareholders’ Agreement

In effect, the shareholders’ agreement (SHA) is deemed a vital document that aims to regulate and govern the contractual relationship among its parties, additionally, the SHA shall determine all liabilities and duties that shall be borne by parties to the said agreement.

Moreover, the provisions of the SHA shall be considered as a road map among its parties, as well as the provisions of the SHA shall be applied to the agreement’s parties to the utmost extent possible.

As mentioned above, the principal envisaged aim of the said agreement is to determine all obligations, rights, duties and responsibilities of each party to the agreement, as well as each party to the said agreement in its turn is obliged to comply with all obligations and duties expressly stated in such an agreement.

What is the purpose of a shareholder?

Undoubtedly, the SHA includes a set of material and specific provisions as such provisions shall be compulsory in such kinds of agreements, furthermore, such a kind of agreements shall be concluded prior to establishing an entity in accordance with the provisions of each jurisdiction and/or the implementation of an acquisition transaction(s).

For the avoidance of doubt and ambiguity, the provisions of the SHA along with the corporate documents shall be deemed “Jus Cogens”, whereby the provisions of the SHA primarily shall regulate all matters pertaining to the entity in question.

It is well established that the SHA shall regulate and determine the monetary contributions of each party, the management structure and its optimal formation, the mode of dividends’ distribution, all restrictions and limitations pertinent to the transfer of shares and/or quotas among all parties and/or third parties and all matters within the limit of corporate governance .

In applying to the principle of “Pacta Sunt Servanda,” which is adopted by all international jurisdictions, parties to the SHA are required to strictly abide by all provisions set forth in the agreement, hence, parties to the said agreement shall not infringe the rights of the counterparty(ies).

What are shareholder agreement terms?

It is worth mentioning that the SHA shall include a series of vital and required provisions, such vital provisions shall include but not be limited to the following clauses and terms as follows:

Reserved Matters:

All of the grave matters that are pertaining to the entity’s solid decisions, including among other decisions (increasing or decreasing the capital, amending the activity, appointing or dismissing the management structure, the entity’s liquidation, etc.)

Deadlock:

Any controversy arising out of the Reserved Matters mentioned above without settling such a matter either through the amicable settlement or any otherwise.

Call Option:

It grants its holder the right to acquire the shares and/or quotas of the counterparty, in case of the failure to settle any Reserved Matters.

Put Option:

It grants its holder the right to sell its shares and/or quotas to the counterparty, in case of the failure to settle any Reserved Matters.

Drag Along:

Such provision shall be tailored in favor of the majority group to enforce minority group in the sale of the entity.

Tag Along:

Such provision shall be tailored in favor of the minority group to be joined accordingly in the process of the entity’s sale.

Restrictions on transferring company shares

In the same vein, parties to the agreement may agree to set a set of restrictions pertaining to the transfer of shares, such restrictions may come as follows:

Lock -In Period:

which eliminates parties to the agreement to sell their shares and/or quotas unless after the lapse of a prescribed span of time.

Why do we need a shareholder’s agreement?

The SHA is irrevocably required to regulate all of the entity’s affairs and to ensure that the entity’s decisions are duly approved and recognized on a much sound legal basis.

Indisputably, the SHA shall assist in running out the entity’s day-to-day matters in a secure manner without the slightest responsibility on any party.

What is the difference between a founder’s agreement, shareholder’s agreement and share purchase agreement?

It should be noted that there is a major difference between the SHA and share purchase agreement (SPA), as the SPA is an agreement that shall be concluded by and between the seller and the purchaser in relation to the transfer of shares’ title, the liabilities of the purchaser upon the conclusion of the SPA and any other considerations.