Shareholders’ agreements can regulate the following matters to provide for contractual certainty between shareholders:
1. Deadlocks in Decision-Making
If there are deadlocks in decision-making at the level of the board of a company or as between the shareholders, the way to resolve these deadlocks may be addressed in
the shareholder’s agreement, for instance, by deferring certain decisions of the board for decision-making at a meeting of shareholders or requiring the deadlock to be
directed to arbitration.
2. Pre-emptions and transfers of shares
Shareholder agreements may provide for how the shareholders sell, transfer, and dispose of their shares and claims against the company.
Ordinarily, the shares will be offered to existing shareholders first. The shareholder disposing of their shares can also provide conditions for the sale of the shares, for instance, that they be released from any surety on behalf of the company, or if the release from the surety cannot be procured, that the acquiring shareholder agrees to indemnify the shareholder for any claims made as a result of the suretyship.
3. Forced or deemed sales
Shareholder agreements can provide for circumstances in which a shareholder is deemed to offer their shares to remaining shareholders in cases where remaining shareholders the shareholder would no longer wish for that shareholder to retain its interest in the the company, for instance, when:
3.1. A shareholder who is a company is no longer controlled by certain shareholders;
3.2. If a shareholder cannot provide loan finance or refuses to sign a surety on behalf of the company when required by the shareholder’s agreement to do so;
3.3. if a shareholder who is a natural person passes away;
3.4. if a shareholder who is a company is liquidated or a natural person who is a shareholder is sequestrated;
3.5. if a shareholder ceases to be an employee of the company.
4. Clauses of Come Along and Tag Along
4.1. The majority shareholder(s), typically holding more than 50% of the shares in If the company decides to compel remaining shareholders to sell their shares, the majority shareholder(s) obtain an offer from a third party to purchase their shares. The offer made by the third party will be identical with respect to the majority of shareholders’ shares as well as the shares of the remaining shareholders. This is known as a “come along” clause. This enables the majority shareholders to sell 100% of the company if required.
4.2. A tag-along clause can allow the minority shareholders to elect to tag along on a sale of a majority shareholder’s interest in the company. If, for instance, an offer is made to shareholders who own 60% of the company’s issued shares. The remaining shareholders can demand in terms of compensation from a third party for their shares a tag-along clause under which the third party also obtains its shares on the same terms.
5. Put Option
5.1 A shareholder may wish to reserve for itself the right to sell its shares in the company to another shareholder. The Put and Call Option Clause will address the terms of this contractual right and how it is to be exercised.
6. Funding of the Company
The shareholder agreement can address how the parties wish to finance the company and whether they will be obliged to provide their own funding, sureties, approach financial institutions for finance, as well as how shareholder loans to the company will be treated, and when these are to be repaid.
7. Dividends
The shareholder agreement can provide for and divide policy within the company provided that the provisions of section 46 of the Companies Act 2008 have been met.
The provisions of the shareholder agreement must not conflict with the Memorandum of Incorporation of a Company Provisions pertaining to shareholders’ rights and responsibilities may also be addressed in the Memorandum of Incorporation and not in a separate shareholders’ agreement. agreement; however, the Memorandum of Incorporation is lodged with CIPC and may be accessible to the public, whereas a shareholder’s agreement is not lodged with CIPC.
Article by Lisa Boogaard (15/11/2022)
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