 Numerous legal documents regulate the workings of any company, including the Articles of Association, which set out the basic rights of shareholders, how they are to undertake business and respective voting rights.
In many circumstances, Shareholders may want to further regulate their own relationship by means of a Shareholders’ Agreement. This may be particularly important for example to a minority shareholder who could otherwise be overruled in all or most decisions. Through a Shareholders’ Agreement, it can be agreed that no changes will be made to the fundamental make up of the company or the way it is run without the consent of all the shareholders. The shareholders can agree between themselves how they will exercise their voting right on specific issues.
Shareholders may also want to restrict their rights to sell their shares to ‘outsiders’. In relatively small “family” companies it may be desirable to keep the shares within the family. This would be expressed in the Articles of Association and/or the Shareholders’ Agreement. Furthermore the Shareholders’ Agreement may contain provisions for a shareholder who wishes to sell his/her shares to “drag” the other shareholders along, thus achieving a sale of all the shares. Alternatively a non selling shareholder may be given the right to “tag” a selling shareholder and therefore join in the sale process.
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