Shareholder’s Agreements, their Necessity and Example
A Shareholders Agreement (SHA) is an important document that is shared between several shareholders that intend to regulate their relationships and other related matters. An SHA is typically drafted alongside the company’s articles of association although they have their own benefits over the former. Benefits of an SHA over articles of association include the fact that it is private and can thus be made confidential, it can impose more obligations on the shareholders and can be made more flexible than the articles of association. An SHA is important because it helps with the regulation of the relationships being enjoyed in the company at that time.
Because of their custom and private nature, it is tough to tell about all of the key provisions and elements in shareholders’ agreements. Some of the most common elements in any case include the equity investments there. Since the agreements impacts shareholders, there has to be talk of investment which could come with certain obligations. It could be an investment agreement where some returns are expected for specific injections in the business. The Key financing of the company is also a common aspect of such agreements as it helps the investors and company know where they will getting their funding from.
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Another common clause in a typical SHA is an agreement in the definition of the company. If the firm in question is a private entity, then it is not limited to any particular scope of business but rather to making profit. As such, to stop those managing the firm from running amok, the shareholders have to define the business scope if they are to invest in the company. An example of an instance where there will be need of an SHA is when the company is just starting up and has found a few angel-donors. Here, the founders and the donors will be able to come to an agreement and solve any issues that are potential problems in the firm. This is especially true if the relationship between the person funding and the recipient is not strictly professional.
By-Laws that would work for the Above and Clauses to be included in the SHA
Under Spanish law, the region and the national laws have to be adhered to by the organizations serving there. In Spanish laws, there are no minimum number of shareholders that a business is supposed to have. This could be included in the bylaws where the employees of the organization can be allowed to own their own shares in the company depending on specific clauses. This can also be controlled by the SHA which means that it could be present in both documents.
One clause that can only be included in the SHA includes the EU regulation which allows for a single company to, under certain aspects of the law, to operate in the region without any mixed regulation of National and EU rules. This can be positive to the shareholders because it means that they do not need many premises to operate throughout the region and thus costs could be lower.
A by-law that is regulated by the national law yet does not involve the shareholder in any way include the termination of employee contracts due to reasons. This clause is for ensuring that any employee who is laid off has this done in a fair and dignified manner. In the bylaws, there could be regulations such as those professional conduct and dress-code that could help the employee play his role in the organization well.
Differences Between a Company’s Bylaws and its SHA
There are significant differences that exist between a company’s bylaws and its SHA. For one, the corporate bylaws are rules and regulations that were designed to govern the corporation. These bylaws have to be formally accepted by the board of directors in the company before they can be considered positively impactful. Through these bylaws, it becomes possible for the mission and vision of the business to be outlined. The geographic location and duties, roles and responsibilities of its officers and directors are well defined. In order to change any part of these bylaws, it is necessary for the Board of Directors in the firm to organize a sit-down. These corporate bylaws are governed by the national and regional laws.
Unlike the bylaws, the sole motivation of these shareholder’s agreements is profit. The areas that are covered by these agreements are mostly not found within the Company’s bylaws. For instance, a company’s bylaws might not be able to include the buy-sell provision that describes what is to happen in the case that a shareholder can no longer be an investor thanks to death, disability or bankruptcy amongst others. The shareholder’s agreement is also generally designed to ensure that the shareholders participate in the running of the business while the bylaws are not. Unlike the corporate bylaws, the firm’s SHA are highly flexible and can be moved to enable a lot of things including the shareholder leaving the company. The company’s bylaws are rigid and mostly cover the company and its manager’s conduct.
There have also been instances when the shareholder’s agreements are in conflict with the company’s bylaws. The investors are always concerned about profit and they therefore, at times, might not be considerate of what they are asking those running the firm to do. Granted, the shareholder is a very important aspect of the organization, however, putting all the other elements at risk might not be the best way forward for the firm.
