Shareholders Agreements Flashcards
What is a Shareholders’ Agreement (SA)?
A private contract between some or all shareholders that governs their rights and obligations, often supplementing the company’s Constitution.
Is a Shareholders’ Agreement legally required?
❌ No, it is optional but often used for added shareholder protections.
Is a Shareholders’ Agreement a public document?
❌ No, it is private and does not need to be filed with the Companies Registration Office (CRO).
What is the key difference between an SA and Articles of Association?
SAs are private contracts, while Articles of Association are public company documents filed with the CRO.
Which document is legally required?
Articles of Association (part of the company’s Constitution) are legally required, but SAs are optional.
How is an SA amended?
All parties must agree (unanimous consent).
How are Articles of Association amended?
By special resolution (75% shareholder approval).
Why do companies use Shareholders’ Agreements?
To provide extra protections to shareholders and regulate matters not included in the company’s Constitution.
What are some key matters covered in an SA?
✅ Director remuneration
✅ Dividend policies
✅ Share transfer restrictions
✅ Minority shareholder protections
✅ Internal management rules
Can a Shareholders’ Agreement override the Constitution?
❌ No, unless it is registered with the CRO and explicitly made dominant.
How are Shareholders’ Agreements enforced?
They are private contracts and enforced under contract law.
Can courts grant an injunction to enforce an SA?
✅ Yes, if a shareholder is about to breach the agreement.
What key case confirmed the enforceability of SAs?
BIM Group Ltd v Harmon (1994) – Courts upheld an SA as legally binding.
Can directors bind themselves to a decision in an SA?
❌ Not if it conflicts with their fiduciary duty to act in the company’s best interests.
What case ruled that directors cannot fetter their discretion?
Clarke v Workman (1920) – Directors cannot pre-commit to decisions that may later harm the company.
What case ruled that directors can sign an SA if it benefits the company?
Fulham Football Club (1992) – Directors can bind themselves if it is in the company’s best interests at the time.
What are the main benefits of an SA?
✅ Privacy – Not publicly registered.
✅ Stronger protections for minority shareholders.
✅ Customisation – Can include rules not covered by the Constitution.
✅ Harder to amend – Requires unanimous consent, unlike Articles (which need only 75%).
✅ Can regulate shareholder relationships beyond their capacity as shareholders (e.g., loans, services).
What are the main drawbacks of an SA?
❌ Does not automatically bind new shareholders – They must sign separately.
❌ Difficult to amend – Requires agreement from all parties.
❌ May discourage majority shareholders – They may not want to grant extra rights to minority shareholders.
❌ Only binds those who sign – Non-signing shareholders are not affected.
❌ Possible conflict with directors’ duties – A director’s SA obligations must not override their fiduciary duties.
How can a company ensure new shareholders are bound by the SA?
Require them to sign a Deed of Adherence before receiving shares.
What legal principles govern SAs?
Contract law principles, including:
Contra proferentem rule (ambiguities are interpreted against the drafter).
Court interpretation based on parties’ intent.
Why must SAs be carefully drafted?
Courts strictly interpret SAs under contract law, so unclear terms can lead to disputes.
What types of businesses commonly use SAs?
Startups & family businesses – Protects founders & early investors.
Joint ventures – Defines roles, profit-sharing, and dispute resolution.
Investor protection – Ensures early investors retain control over key decisions.
Minority shareholder rights – Prevents dilution of shares or forced buyouts.
What are the two most important features of an SA?
It is a private contract, not a public document.
It provides additional protections beyond the Constitution.
How does an SA differ from Articles of Association?
SAs are private, harder to amend, and bind only signatories, while Articles apply to all shareholders and are easier to change.
