Shareholder Agreement Key Terms

Traditionally, a stock “buys” a voice. The shareholder, who owns more than 50% of the shares, can make decisions and control the company (for certain decisions, holders of more than 75% of the shares must give their consent). This is not always what shareholders want: it can sometimes be advantageous for everyone to have an egalitarian right of look and sometimes it can be advantageous to give a greater right of review to someone who has contributed more. Minority shareholder rights. The legal framework is designed to protect minority shareholders. Just because a shareholder owns more than 50% of his company does not mean that he can make decisions that do not respect the interests of minority shareholders. Do you remember 2005, when Mark Zuckerberg watered down Facebook co-founder Eduardo Saverin`s share on Facebook and fired him from the company? You never know when a friendly relationship can get upset. That is why it is always wise, for any practice with several shareholders, to sign a shareholder pact to protect your interests along the way. A dispute settlement mechanism agreed in advance is constructive to overcome deadlocks in both 50:50 and disproportionately involved companies. If shareholders of the same position are not willing to detach themselves from their position or if a majority or unanimous agreement is necessary but cannot be reached, the company finds itself in a deadlock. This would force a company that, on the other hand, is working perfectly, to stop if shareholders fail to compromise and move forward as a unit. The shareholders` pact should define in advance what constitutes a dead end (for example.

B the failure to pass a resolution after two or more attempts) and the panacea for such an event. There are different formulations of deadlock resolution clauses, each of which has different implications. A “Russian roulette scheme”, generally more favourable to deep-pocketed shareholders, allows a shareholder to issue a notice indicating the intention to buy out the other shareholders at a certain price. On the other hand, a put option is more advantageous for shareholders with lower financial capacity, since it has the right to sell its shares to another shareholder at a predetermined and fair price.