If two or more shareholders are in a limited company, they must, in the absence of an explicit agreement between them, rely on the company`s statutes to settle their relationships with each other and with the company. Although the statutes regulate issues as fundamental as the issuance of new shares, administrative procedures related to shareholder decisions and board meetings, they are unlikely to influence the day-to-day life of business or many issues that fall into the trap of shareholders. For example, companies generally have no provision for what happens when a shareholder wants to leave the company or if some of them want to withdraw or buy from other shareholders. The doctors were well trained, qualified and successful. They left the world of university medicine to start a private practice with every indication that the practice would be lucrative. Although they met with a lawyer to create a professional company, the lawyer did not prepare a shareholder pact for one reason or another. The consequences became apparent when one of the doctors decided to leave the practice and move to Mississippi. The death of a shareholder and a director can have many negative consequences for a company. A shareholder contract governs and regulates the relationship between shareholders. Relationships are great when relationships are great, but what if they become angry? As you will see below, a shareholder pact can be very helpful.
However, many companies still want to offer minority shareholders protection against certain decisions in order to comfort them. An example could be the issuance of new shares (and thus the dilution of the current shares that would seriously harm a minority shareholder) and a shareholder contract could therefore require the unanimous agreement of all shareholders voting for such acts. If you want to sell, the last thing you want to jeopardize is a minority shareholder who is clumsy in the hope of getting a bigger payment or just wanting to hang on to his shares. Drag Along rights ensure that these shares are also sold. Of course, when two or more people start a business, they focus on things like degeneration of income and hiring the right people. With all their energy focused on exploitation, owners sometimes pay too little attention to developing an agreement between them. A new court process shows what can go wrong – and often does. In addition to reviewing the shareholder contract and the statutes, it is essential to verify your will and your long-term powers. Some of the issues that shareholders consider to deal with each other and with the company, how and when they can transfer their shares, are better dealt with in the company`s statutes.
This is because a shareholders` pact is a contract between the shareholders and, as such, any counter-measure may give rise to a right to reparation, but generally does not impair the validity of the impudment. For example, a transfer of shares in violation of a shareholders` pact is generally a perfectly valid and legal transfer, even if other shareholders are entitled to an infringement. The claim is of value to other shareholders only if they have suffered a loss, as the normal remedy in the event of an infringement is compensated for the losses caused by this offence.