Most companies that require a Shareholder Agreement, particularly start-ups, opt for our standard Shareholder Agreement. However, we want our clients to be aware that should you require something more specific in your Shareholder Agreement, our experts are willing to amend our standard Shareholder Agreement to suit your needs.
The following paragraphs include some additional Shareholder Agreement clauses which can be added for a fee. These clauses are designed to tease out specific plans or eventualities the company may consider going forward. Below we have examined some additional clauses your company may wish to include in its Shareholder Agreement and why they may be useful.
Tag Along Rights
The opposite of ‘drag along rights’ that are included in our standard Shareholder Agreement, ‘tag along rights’ give the minority shareholder the option to sell their shares for the same price, terms and conditions as the majority, but unlike drag along rights, they are not obliged to sell their share of the company should a sale of the majority shares take place. It is in this case they have the option to tag along with the sale of the company, but they are not obliged to.
Non-Financial Equity
It is very common for a start-up to include some kind of non-financial reward in the form of shares for directors, employees or current shareholders as part of their structure. A Shareholder Agreement can include details with regards to how and when these shares are gifted in a company. It is common for a start-up to set performance-based targets, and rather than rewarding staff or others in the business with money, further shares are issued to them. These shares can have a range of conditions attached to ensure it does not alter the primary voting powers of the company and all of this can be added on to your Shareholder Agreement.
Share Vesting
Similar to the above, share vesting is used to issue shares to people directly involved in the business as a reward or payment not in cash. A Shareholder Agreement can include provisions for shares to be issued over a set period of time. Unlike non-financial equity, share vesting gives an employee or director a guarantee that these shares will be issued in the future. In many cases, this process is used to hire highly skilled employees to a business with the aim of providing a better remuneration package.
Good and Bad Leavers
This option refers to the conditions pertaining to how a shareholder exits the company. Parties to a Shareholder Agreement may wish to include provision for if a shareholder decides to sell their shares, move on or is forced to leave the company for whatever reason. The purpose for this is to have a set of rules in the Shareholder Agreement to allow for a smooth transition that will not impact the growth of the business. Good and bad leavers clauses can apply to any reason why a shareholder leaves a company and as a result, would sell their shares in the entity.
Acts Requiring Special Consent
There are a wide variety of specific items you may want to include in your Shareholder Agreement that require special consent. Whether it be a large majority of the shareholders need to provide permission for a certain act, or a certain individual party must sign off on something before it can go ahead. Here are some examples that you can add to your Shareholder Agreement for an additional fee:
- make any decision that would adversely affect the position of the holders of the Shares
- carry on any business other than the Business or make any material change in the scope or nature of the Business
- create or issue or agree to create or issue any shares in the Company
- create or issue or agree to create or issue any loan capital (whether convertible or not) or give or agree to give any option in respect of loan capital in the Company
- vary the rights or obligations attaching to any share or loan capital or increase or reduce its share capital or consolidate or subdivide any shares in its capital
- purchase or redeem any of its own shares
- grant or agree to grant any option or warrant or other security or instrument in respect of which may result in the issue of shares in the Company
- alter the Articles or this Agreement
- change the corporate status of the Company
- enter into any transaction or arrangement resulting in a Sale
- make or repay any directors’ loan or any shareholders’ loan
- incur or permit to subsist at any time any borrowings
- enter into any contract or transaction except in the ordinary and proper course of business on arm’s length and commercial terms
- transfer, sell, license or otherwise dispose of the whole or any material part of its business undertaking or assets (other than trading stock in the ordinary course of business) or grant any interest therein or, in each case, enter any agreement or arrangement to do so
- enter into any scheme or arrangement with creditors
- change the minimum and maximum number of directors allowed
- other than in the ordinary course of business transfer, assign, licence or otherwise dispose of any of its intellectual property rights
- transfer, sell or otherwise dispose of any part of the Business
- make any loan or provide any credit (other than normal trade credit given in the ordinary course of business)
- purchase or subscribe for or dispose of any shares, debentures, mortgages or securities (or any interest therein) in any company, trust or other body
- enter into any credit sale, hire purchase or leasing agreement
- create or permit to subsist any mortgage, encumbrance or charge whether floating or specific on the whole or part of its undertaking, property or assets or give any guarantee or indemnity
- factor or assign any book debts
- enter into any partnership, joint venture or profit sharing agreement with any persons
- open, take an interest in or carry on business on any land or at any premises
- do or permit to be done any act or thing whereby the Company may be wound up (whether voluntarily or compulsorily)
- establish any retirement, death or disability benefits or arrangements for directors or employees of the Company
- give any guarantee, indemnity or security in respect of the obligations of any other person other than of the Company
- pay any dividend or make any distribution to the members of the Company
- the alteration of the objectives of the Company, the nature of business, whether reflected in the Constitution of the Company or otherwise.
- the acquisition or disposal of any subsidiary Company or the participation in any venture, joint or otherwise, or partnership
- entering into any winding up or liquidation proceedings on behalf of the Company or any other type of arrangement
- alteration of the assigned auditors for the Company
- altering the financial year end of the Company
- entering into any form of sale or similar transaction for the part or whole of the goodwill contained in the Company
- the creation of any employment contract or renumeration package for employees of the Company
- to dismiss any employee of the company
- in any financial year, to incur or agree to commit to capital expenditure that exceed a specified amount (please specify the value)
If you have any other requirements under this section that is not listed, just let your company secretarial professional know and they can work with you to prepare a suitable clause.
Board Proceedings
The Shareholder Agreement can state more specific requirements for the convening and conducting of board meetings such as regular intervals, short notice periods for urgent board meetings or how the notice and agenda are distributed. Our standard Shareholder Agreement has a more general section on this topic, but it can be tailored to your specific needs as an extra.
Debt and Equity Capital
The option of placing a debt and equity capital clause in a Shareholder Agreement can be significant for a start-up company. In some cases, a company will obtain funding internally from the shareholders of the business in the form of investment or loans to the company. The debt and equity clause can provide a wide range of options that cover how investment like this is treated. This can include conditions pertaining to when a loan should be repaid, whether it can be converted into shares in the company and the conditions pertaining to same during a winding up.
Access, Financial Information and Records
This section essentially deals with information rights. Directors of the company have fiduciary duties under the Companies Act 2014 are entitled to view financial documents to carry out their roles. However, a shareholder who is not appointed to the Board of Directors may not have extensive rights to access information about the company and that can be provided for in this clause where certain information is required.
Start-up costs
Starting a company can be expensive and the Shareholder Agreement can provide for how and when start-up costs should be returned to the person owed.
Meetings of shareholders
Similar to the section on management of the company, this can include how shareholder meetings such as General Meetings or Annual General Meetings are conducted and can look at items such as quorum or notices for meetings.
Non-Voting Share Options
Some companies issue non-voting shares in return for investment. The purpose of these shares are to generate funds for the company and for no other purpose so to ensure these investors have no control over the company, non-voting shares could be created in the Constitution and referred to in the Shareholder Agreement.
Buy/Sell Agreement
In the case of a force majeure or death of a shareholder, the company is entitled to repurchase the shares from that shareholder or the shareholder’s estate. If the company does not have sufficient reserves to purchase the shares, the shares are offered to the existing shareholders.
Termination of agreement
Certain provisions can be included in the Shareholder Agreement that will give rise to termination of the Agreement that can be discussed with your Company Secretarial professional to suit your needs.
Confidentiality
While we consider the confidentiality section a standard section of our Shareholder Agreement, this can be teased out further and may require much more detail depending on the needs of your company.
The above additional points can be added to your Shareholder Agreement upon consultation with our experts for an agreed fee. Just let us know on the order page if you anything additional.
The above additional clauses to include in a shareholder agreement can be added to the standard format to further secure and structure your business for the future. ShareholderAgreements.ie can assist you with should you wish to discuss any aspect of the above or any of our services. Please feel free to complete our contact form or call the team directly on 01-2405277.