Bluemount Bulldogs
Nova Scotia, Canada

Shareholders Agreement Dos And Don`ts

A shareholders` pact is essentially a pre-marriage agreement of the company. The main objective of a shareholders` pact is to regulate the relationship between the parties and their behaviour, while they are in a relationship and when they end the relationship. The day-long plan will benefit the minority shareholder in such a way that if someone wishes to acquire the shares of a majority shareholder, that shareholder can only sell his shares if the purchaser makes the same offer to all shareholders, including the smallest shareholders. It could be a breakdown of the social relationship or the unfortunate bankruptcy, or even the death of a shareholder. Many companies find themselves in precarious situations because shareholders have not given enough thought to what might go wrong. The interest of shareholders is just as important with the growth of the company as the motive of any shareholder is to earn some profit at the personal level, and this must be kept in mind when drawing up the agreement. Some of the interests are – However, a shareholder contract cannot be invoked if there is no partnership contract under the Partnership Act of 1890. A “pump gun” clause is often used to force a buyback. Here`s how it works: Shareholder A offers its shares at a certain price per share (for 2 shareholders). B may accept this offer or in turn propose A the same conditions, in which case A must accept. This ensures that A offers a “fair” price. Essentially, one party will eventually buy the other party (of course, the two parties can, by mutual agreement, agree on a price – it`s easy if a shareholder wants to withdraw to pursue other interests. It will be more difficult if both want to own and manage the business.

The gun approach is ideal for small businesses where values are not too high because they prefer the party with more financial resources. For high-tech companies with high valuations and several shareholders, the pellet gun approach would not work very well. What happens when a shareholder dies? There should be a fair way for surviving shareholders to acquire shares (optional or mandatory) of the deceased shareholder`s estate. The company should have life insurance to finance such buybacks. It is a good idea to have a tax accounting consultant who is competent in this area as well. How can we focus on equities? Options: external valuation experts (expensive and unpredictable) or shareholders to agree on a value and attach it to the agreement as a timetable (which is regularly updated) or to use a formula (several profits or sales, book value, etc.) or a combination of the book value mentioned above. As in the case of a pre-marriage agreement, the shareholders` pact is prepared at a time when hopes are high and everyone has their best behavior. The new agreement is exciting with an unlimited upward trend. The sales team will not necessarily want to think about what might go wrong and how they might or would want to get out of this relationship. Part of the lawyer`s role in these transactions is to be the pessimist (or perhaps the realist) and to focus on those issues, so that if things don`t go as planned, there are clear rules that can be played.