In business you must always be mindful of risks. The risks of losing your fellow shareholders support or even interest in the business, for whatsoever reason, is not ideal.
So how do you manage these type of situations? Well for starters making sure you climb into bed with parties who you can walk a long road with, alternatively having a proper Shareholders Agreement in place to regulate the relationship.
What is a Shareholders Agreement exactly? It is the primary agreement which regulates the relationship between the various shareholders of the entity. It is also private, meaning that is not submitted to the CIPC and is only applicable to the parties who sign the agreement.
Do not confuse your MOI (Memorandum of Incorporation) with your Shareholders agreement, granted there is some overlapping. But both are critical in their own right. It is important to note that your Shareholders agreement is subordinate to your MOI and the Companies Act.
This means, that you cannot simply add any provisions you feel like to a Shareholders agreement. So what are some common provisions in a shareholder agreement?
- Share structure
- Voting rights
- Forced Sales
- Put and Call provisions
- Dispute resolution
- Shareholder resolutions and many more.
Many shareholders tend to forget that their shares fall into their estate, meaning that should you be married (subject to your matrimonial property system) and you are going through a divorce, your spouse might be able to gain control of your shares and, by extension, of the company.
In conclusion if you don’t plan your business divorce first, you might be left with nothing to hold onto.
MatthewS
Senior Associate - LE Legal Division