Shareholders’ Agreement for Singapore Businesses
What Is a Shareholders’ Agreement?
A Shareholders’ Agreement a formalized agreement between the shareholders of a company. It is purposed to supplement the constitution of a private limited company.
The shareholders’ agreement details the understanding of parties to it and how the company will be managed. It also states the relationships, rights and powers, and obligations of the parties to it. The scope of the agreement varies as per its purpose.
They may be purposed to address the consequences of a shareholder’s death or how a shareholder can buy out another in the case of a dispute. The shareholders’ agreement may also state circumstances and rules & regulations regarding the policies & management of the company or the shareholders’ right to acquire or dispose of shares.
Types of Shareholders’ Agreements
The following parties may come together for a Shareholder’s agreement:
- A group of shareholders
- All the shareholders of company
- Shareholders & company
Having the company as a party to an agreement is of advantage. It makes enforcement of the terms of agreement easy. The disadvantage is that the company’s consent may be required for amending the agreement.
Shareholders’ Agreement and Dispute Resolution
That is why it is advisable for the shareholders in the private companies to have shareholders’ agreement that addresses partnership matters, right of first refusal or the total prohibition of selling of shares to any third party.
The shareholders’ agreement comes handy to resolve the disputes between the shareholders. It saves time and huge costs of the litigation or negotiations. They do not have to hire lawyers, tax specialists, or business valuators and pay for their services.
The agreement also includes provisions to deal with the aftermath of shareholders’ disability or death. These documents also detail the decisions needing unanimous approval or specific percentage votes for approval to prevent out-voting. The provisions prove useful when the company has more than two shareholders or minority shareholders.
Benefits of Shareholder’s Agreements
- All parties to the Shareholders’ agreement must consent to alter it. On the other hand, a company’s constitution can be altered based on votes.
- As opposed to the company’s constitution, a shareholders’ agreement is not open for public’s scrutiny.
- The shareholder’s agreement can detail rules for governing matters not included in the company’s constitution.
- The shareholder’s agreement can address protection and specific rights to investor in great detail.
- The agreement can be employed to enhance the competitive edge of company.
- The agreement can also specify confidentiality and non-competitive obligations.
Terms of Shareholders’ Agreement
A well-defined shareholder’s agreement is purposed to address the concerns of the parties to it. A few of them are as follows:
- Company’s Management
- Loyalty & Confidentiality
- Return on Investment
- Valuation Method
- Exit route
Shareholders’ Agreement & Defaults
The shareholders’ agreement details certain acts or omissions by a shareholder as the breach of the agreement.
The agreement may include following defaulting events :
- Failing in discharging obligations outlined in the agreements
- Stopped being a Singapore resident
- Allowing creditors to attempt to seize the company shares
- The shareholders’ spouse is applying for a part of the shares under the Family Relations Act
Shareholder Agreements & Financing
Shareholders’ Agreements may stipulate the institutional lenders as the primary source for the borrowing of funds. The lenders could be banks, credit unions, or trust companies. The shareholder may have to sign the unlimited guarantee for such loans and would be liable for 100% of the amount
Shareholders’ Agreements & Shareholder’s Employment
As it happens, many private limited companies employ their shareholders. The agreement provides for such incidences by setting out the ground rules for the employment.
The shareholder’s agreement is enforceable by parties to it and not by others. If a private limited company is not a party to the agreement, it cannot be made to follow the terms. A shareholder’s agreement holds together the entities that are party to it. A company constitution, on the other hand, relates to the company’s all shareholders.