Shareholder Agreement
Shareholder Agreement questions and answers
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Q: If more shareholders are introduced how does it affect the shareholders agreement?
In a shareholders agreement it lists all the shareholders by name. If there are 20 shareholders who do the agreement and then at a later date (say a year) another shareholder signs the agreement. What happens later, does a new copy of the shareholders agreement need to be send to all the shareholders?
This is assuming no other changes have been made.
What if the present shareholders object to the new shareholder?
What can they do?
Is the shareholder agreement between an individual shareholder and the corporation OR is it between the corporation and all the shareholders?
A: A shareholders' agreement (sometimes referred to in the U.S. as a stockholders' agreement) is an agreement amongst the shareholders of a company.
In strict legal theory, the relationships amongst the shareholders and those between the shareholders and the company are regulated by the constitutional documents of the company;however, where there are a relatively small number of shareholders it is quite common in practice for the shareholder to supplement the constitutional document. There are a number of reasons why the shareholders may wish to supplement (or supersede) the constitutional documents of the company in this way:
Q: What are the consequences of not having a shareholders agreement?
My corporation will have 10 to 30 shareholders. Should the corporation have a shareholders agreement?
A: Absolutely. While you may not think there will ever be an issue in the future, with 10-30 shareholders, you can virtually guarantee a disagreement. The agreement needs to spell out what happens in the event of a partner death, disagreement, sale of shares, etc.
Q: can a shareholders agreement limit the liability of a trustee to the assetts of a trust?
The Trust in question is a shareholder in the company
This question relates to New Zealand Law.
In the Shareholders agreement it is written that the trustees personal liability is only limited to the assetts of the trust.
A: No.
State law and the Articles of Incorporation would limit the liability of the trustee, not a Shareholder's Agreement.
Q: Can someone send me a draft shareholders agreement for 2 individuals intending to start a compnay?
I am starting up a company with one other person. I will really appreciate any advice from people who have been in the same situation. Please forward shareholders agreements, business proposals to be sent to clients and to financiers like banks and any other documentation that you'd think would be necessary in this situation. Advice though will be highly appreciated.
A: just google it and look online - there are probably 100's of webistes with partnership agreements, etc - or just go to a bookstore and buy a book
Q: What are the benfits of becoming a shareholder in an "S" corporation?
I have been offered shares in a start-up "S" corporation in excange for helping the company become established and becoming an Officer. It seems to me that the only benefit to such compensation would be if the company paid a divided or was sold. The latter is not likely to happen, given the stated intentions of the majority shareholder, and the former is not likely to happen any time soon as company profits will be used for growth. According to the existing shareholder agreement which is being negotiated, all shares would have to be sold back to the company (at a pre-determined company value price formula) upon discontinuation of employment. Because of this, the shares themselves could be virtually valueless, because as a minorty shareholder, I could be fired at any time and would have to sell the shares back...perhaps at an disadvantageous time as far as company value is conserned. So, why would anyone want to enter into such an arrangement? Am I missing some benefit?
We have considered including some language in the shareholder agreement that will require the company to pay dividends that will cover our individual tax liabilities at a minimum,and make this something that cannot be changed without consensus. This should, in theory, asuage the fear of being forced out through dividend withholding. There remains, however, the issue of the selling of shares back to the company. I would propose that a shareowner cannot be forced to sell their shares back to the company, regardless of their employment. However, the shareholder can compell the company to buy back the shares at any time, using the pre-determined formula. This way, a shareholder could not be fired, simply to take advantage of regaining their shares. Any thoughts on these concepts?
A: The only benefit to an S Corp is how it is taxed by the IRS.
You are right on the other points.
Q: Are there any laws on anti-competition clauses in shareholder agreements?
in other words, can a shareholder just open up his own business which is competing with the company that he has invested in?
if possible, answer in the singaporean context please...
A: I don't think there's a law on anti-competition in singapore. Anyway Sg is a free market, monopoly/monopolistic markets are discouraged by govt.
Only thing that you can do is to get the shareholder to sign an agreement on the non-disclosure & non competition (which I doubt anyone will sign the later one) with the company. If he sets up a coy to compete with you, then you MIGHT have an case against him. But if the shareholder does work full-time in the company, then you have the right to ask him sign it, almost like an employment/appointment letter.
Anyway, it all boils down to how well your company can increase the shareholders' value. If their needs on monetary returns are met, then its unlikely that he/she will get his own hands dirty by setting up another business to compete with you. All shareholders have one thing on their mind, that is to grow the company so that they can sell their shares to 3rd parties or get it public listed thus making them tonnes of $.
Q: Can a minority shareholder sell their shares without notification?
If a small company has three shareholders, 65%, 30%, and 5%; can the 30% minority shareholder sell his shares without notification to the board if there was no shareholders' agreement drafted previously? What rights does a minority shareholder have in general?
It is a limited company, which is actually located overseas but I wanted to get some general ideas of the usual rights of shareholders. Thanks!
A: It depends on the legal system and on the bylaws ruling the company. Please, state where the company is registered (state/country) and the legal form of the company.
Q: May a corp. deduct the legal fees in a stock transfer between a 100% shareholder and to a minority shareholder?
The 100% shareholder transferred all shares to the minority shareholder. Are the legal expenses incurred in drafting the transfer agreement the responsibility of the individual shareholder?
A: Yes it can.
Q: Assuming there is no agreement on the issue, in order to transfer shares?
Assuming there is no agreement on the issue, in order to transfer shares owned by a shareholder, the shareholder must obtain approval of:
a. The board of directors, regardless of whether the transfer is made by sale or gift.
b. The board of directors if the transfer is by sale, no one if the transfer is to be made by gift.
c. The other shareholders, regardless of whether the transfer is made by sale or gift.
d. The other shareholders, but only if the shareholder is selling more than 50 percent of the outstanding shares.
e. Neither the board of directors nor the other shareholders.
A: Anyone who owns shares can do as they like with it. Sony cannot tell yo what to do with your Playstation similarly you do not need anybody's approval to transfer or sell shares.
Q: Directors/shareholders agreement...can you help?
I am in the process of setting up a Limited company with 2 others. We want to keep start up costs to a minimum. Does any one have directors /shareholders - contracts/agreements that they would be kind enough to email me, so we can use it as a good starting point and ammend it accordingly?
I would be very grateful if any one could and would help.
A: hi there. email davetumalty@yahoo.co.uk and I will send you one.
But only if you are in the UK because i dont know if it would be valid anywhere else.
Q: Who is an investor agreement normally made with? Is it with the Company Directors? Or other investors as well?
would having an investor agreement between just the directors and the investor in question as parties to the contract (without any agreement with other shareholders) invalidate it?
A: Answer for UK:
The Directors only run the company on behalf of the shareholders.
The shareholders own the company, they are entitled to profits by way of dividend and have a call on the assets (to the amount they have invested) of the company if the company is wound up.
The investor agreement is usually between the shareholders. Usually - though not always - all shareholders should sign up. It is usually the shareholders that want to regulate their position because they ultimately can appoint/ remove directors.
An agreement between the directors and a single shareholder is not invalid but it sounds like there should be a shareholders agreement between all shareholders.
If the investor only has 5% shareholding, they ought to have better protection. Question: is the agreement between the shareholder and the directors or company and the shareholder?
Q: Is exchanging economic interest for shares as detremental as it sounds?
I've just received a shareholder agreement wherein the first line states "...grant 50 shares in exchange for X% economic interest..."
Seeing a lawyer is definitely on my todo-list but wanted some initial feedback...does this line mean I'm forfeiting my X% of the company for shares?
A: I suspect that the company you own has been purchased by another company in a "share swap". If so, the buying company gives you shares in IT for the ownership you have in the other company. The nice thing is, because now your OLD company is owned by the new company, and you own part of the new company, you still own the old company. Well, second hand.
If there are not two companies involved, then my example is incorrect.
Q: Should I agree to enter into a variable pay rate agreement?
I am paid hourly for finance services and most of my time is charged to clients through time-billing. Roughly 15-20% of my time is not charged to clients but is for necessary administrative tasks which isn't unusual for other employees in finance and accounting. My boss wants to pay me a lower hourly rate for my time which isn't charged to clients and adjust down my pay when clients don't pay their bills, something I don't have much control over. I've already had my hourly charge-out rate increased by 20% and have been insisting for years that our admin staff take initiative to handle much of the admin work I end up having to do. I'm not a partner or shareholder in the business sharing in the profits or commercial risks of the business and am not paid performance bonuses. Do you think this arrangement my boss is proposing is fair, workable or even sensible from a business management perspective?
A: This may not be the answer you want to hear, but you articulate yourself very well and seem to be very business-savvy--sounds like you might need to branch out into your own business doing this! Your boss trying to pay you less or making you hustle to get a fair payment rate is not fair. You can probably make more on your own, a lot more! If you must stay working for this man, threaten to quit or leave if you don't get the wages you want, and I bet money he'll give you what you want!
Q: I need language for a buy-sell agreement?
What is appropriate language for a buy sell agreement where one shareholder names the price and the other decides whether to buy or sell?
A: Since we are talking about a critical part of your business, the best advice is to let a lawyer draw something up for you. But if you insist on doing it yourself, they have this thing called google. It will get you almost anything you will ever need.
Q: Question on EC competition law? Any EU lawyers out there who can help me out?
I'm doint some research for a class at law school and wondering if you could advise on the following proposition?
What does EC competition law have to say about restrictive covenants in shareholder agreements that prevent the shareholder from selling their shareholding to a competitor? Does this constitute a prohibited agreement?
A: I have no idea about the EC, but that type of restriction is necessary for industry to function and I would seriously doubt if it would be prohibited anywhere.