Shareholder Agreement: A Strong Shield of Protection
- Date: 2007-11-15 - Word Count: 329
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Hope for the best but be prepared for the worst - this age-old sagacious saying cannot be passed up as passé. It has strong relevance in every step in man's life even now. The matter of buying a share in a private limited company can be taken as an example. In this kind of company, each share carries a prescribed number of votes. The shares that are of the same class are known as ordinary shares and an ordinary share carries one vote each.
Now, this fact clearly reveals that the majority of the shareholders will control the company. And there is no guarantee that the majority will take a decision that will be in favour of the minority. It is because of this, shareholders agreement becomes necessary. It comes handy when the rights and duties of shareholders prescribed by the law as well as other company regulations are apprehended to be insufficient.
In order to protect the minority shareholder from the injustice of the majority, shareholders agreement grants a few rights to them. Among them there are the options to put their stakes to their partners or to call their partners stakes, in part or in whole, at a strike price that is typically equal to 'fair' value. Under the agreement, parties are also allowed to tag-along rights or co-sale agreements.
This also paves the way for the concerned parties to demand of a trade buyer to buy their partners' stakes in the same way their partner can. In addition to this, shareholder agreement provides drag-along right. This right allows the minority parties to force their partners to join them in selling their stakes to a trade buyer in case of a trade sale. Besides this, there are some other rights allowed by this agreement. All these rights protect the parties who settle for it.
About the Author: The Author is an experienced writer presently writing on topic like Company Formation for taking business services to form a company.
Now, this fact clearly reveals that the majority of the shareholders will control the company. And there is no guarantee that the majority will take a decision that will be in favour of the minority. It is because of this, shareholders agreement becomes necessary. It comes handy when the rights and duties of shareholders prescribed by the law as well as other company regulations are apprehended to be insufficient.
In order to protect the minority shareholder from the injustice of the majority, shareholders agreement grants a few rights to them. Among them there are the options to put their stakes to their partners or to call their partners stakes, in part or in whole, at a strike price that is typically equal to 'fair' value. Under the agreement, parties are also allowed to tag-along rights or co-sale agreements.
This also paves the way for the concerned parties to demand of a trade buyer to buy their partners' stakes in the same way their partner can. In addition to this, shareholder agreement provides drag-along right. This right allows the minority parties to force their partners to join them in selling their stakes to a trade buyer in case of a trade sale. Besides this, there are some other rights allowed by this agreement. All these rights protect the parties who settle for it.
About the Author: The Author is an experienced writer presently writing on topic like Company Formation for taking business services to form a company.
Related Tags: agreement, shareholder, uk company formation, limited company, shareholders agreement, limited by shares, company limited by shares in the uk
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