The shareholder agreement protects the common interests and makes it easier to put an end to future disputes. By signing the agreement, the shareholders agree on certain points such as the sale of their shares and their votes at the general meetings. The shareholders’ agreement is a contract. It may not contain clauses that do not comply with corporate shareholder law and that go against the articles of association. It is subject to the conditions of validity of the shareholder agreement. Moreover, the latter is confidential: it is known only to the signatories.
To be precise, this allows organizations to maintain anonymity and confidentiality. The shareholder agreement is an act that is not known to third parties, unlike the company’s articles of association which are accessible to any interested third party.
However, there are also some disadvantages to consider, such as the limited impact on third parties and the fact that changing a given article can take a long time.

Corporate shareholder: Drafting of an agreement

The shareholder agreement must be drafted in writing, by means of a private document. The shareholder who have signed the agreement can either draft it themselves or hire a professional (usually a business lawyer). Notaries and chartered accountants can also draft the shareholder agreement, provided that this is an accessory mission to an accounting mission for the latter.
The shareholder agreement can be signed at any time. Most of the time, it is put in place when the corporate shareholder is created or when it is acquired.
Contrary to the company’s articles of association, the shareholder agreement does not necessarily concern all of the company’s shareholders; it can only be signed by some of them. Moreover, the corporate’s shareholders who have not signed the agreement are in principle unaware of it. Thus, certain shareholders may establish in the shareholder agreement certain operating rules that are valid only among themselves.
The signatories of the agreement must agree on the duration of the agreement, which may be fixed in time by designating a precise date or moment or indefinitely, in which case the agreement may be terminated unilaterally.

Why draft a shareholders' agreement for a corporate shareholder?

The agreement specifies certain rules concerning the organization and operation of the company, and allows certain questions to be settled in order to avoid disagreements and anticipate conflicts. Thus, it also guarantees more security for the shareholders by stabilizing their relations. The drafting and conclusion of such a document ensures a balance between divergent interests, or to reinforce the protection of common interests.
The pact has many advantages. It allows to settle particular situations, specific to certain partners. It can also contain clauses intended to apply for a limited period of time, which is not possible with the corporate shareholder’s articles of association, which are intended to govern its organization for the entire life of the company. In addition, the great freedom it offers to its members gives the shareholders a great deal of leeway.
Finally, the shareholder agreement can be modified at any time by simple agreement of its signatories; unlike the articles of association, no other formality or publicity is required. It is therefore, by definition, much more flexible.

Corporate shareholder in Singapore

What are the essential clauses of the shareholder agreement?

The main clauses that can be found in the shareholder agreement are the following:

1. The right of pre-emption:

This is a clause allowing each partner, in case of transfer of the company’s shares by another partner, in any form whatsoever, to benefit from a priority right to buy back these shares. It is possible to provide for a rank according to the different types of partners. The use of a pre-emption clause thus allows the partners of a corporate shareholder: to control the entry of new partners, and to avoid reversals of majority if all the partners benefit from the right.

2. The right of joint exit:

In case of transfer of the majority of the corporate shareholder’s share capital or of the voting rights at the general meetings of the partners, the minority partners may have the faculty to make the transferees, and failing that by the transferor, acquire all the shares they will hold under the same conditions and according to the same terms as those retained between the transferor and the transferee. In the event of a change in the majority shareholder, the minority shareholders may therefore have the choice between remaining in the capital or selling their shares.

3. The inalienability clause:

This is a clause prohibiting any partner from transferring his shares during a period to be determined, necessary for the realization of a project of the company. The use of a clause of inalienability can be opportune within the framework of a creation of company gathering active partners and investors. The latter will thus be able to ensure that the partners who carry the project remain involved in the company.
The scope of the clause can:

➤ Be total, thus prohibiting the transmission of all the shares of the partners or shareholders, except for transmissions having for object the patrimonial reorganization of the holder
➤ Or be limited: for example, it may only apply to certain partners or certain transactions

4. The forced transfer clause:

This is a clause by which the partners undertake, in the event of an offer from a third party or a shareholder to acquire 100% of the corporate shareholder’s capital, to transfer all the shares they hold under the conditions and according to the same terms as those proposed by the transferee.

5. The non poaching clause:

This is a clause forbidding any partner, without the agreement of his co-partners, to poach any employee of the company for his own benefit or for the benefit of a company in which he has a participation and/or exercises management activities.

6. The non-competition clause:

It is a clause by which the partners forbid themselves to participate as partners or managers in any company having an activity competing with that of the company.

7. The withdrawal clause:

This clause gives the right to any associate to request the repurchase of his shares by the company according to a certain notice and a price defined in advance according to a valuation formula.

8. Limitation of the power of the directors:

In principle, the directors have no limitation of power in the acts they undertake in the name and on behalf of the partnership.This clause makes it possible to provide that certain acts which do not correspond to the day-to-day life of the company will have to be endorsed by all the directors or partners, or by an ad hoc committee.

9. Limitation of the shareholding:

This clause stipulates that no shareholder who has signed the agreement may hold more than a certain number of shares in the company, thus limiting the control of a company by the majority shareholder alone.

10. The voting clause:

This clause obliges certain partners to vote in the general meeting in the same way. They must agree beforehand on the direction of their vote. It allows to ensure a majority block at the meetings.

11. The approval clause:

It allows to condition the sale of a share of the shareholders to the agreement of the signatories of the shareholder agreement.

12. The remuneration of the directors:

This clause allows to foresee the rules of remuneration of the managers and avoids, in case of litigation, that the partners decide not to pay any more remuneration to the manager.

13. The exclusivity clause:

The exclusivity clause allows to foresee that certain partners-managers will have to devote all their working time to the company during a certain period. It allows to ensure a balance between the contributions in cash and in working time.

The partnership agreement can include any provision that seems appropriate for the distribution of power and financial balance in the company. Thus, it is possible to insert many clauses in a partnership agreement, which is of great use in certain projects, and the drafting must be very precise if one wishes to establish a solid and effective legal act.

Moreover, while the content of the agreement remains extremely free, it is impossible to derogate from certain rules, in particular those of public order. Nor can the agreement be contrary to the rules of corporate law and the articles of association. The relationship between the latter and the agreement can sometimes be complex.

Is the drafting of a shareholder agreement mandatory?

The drafting of the articles of association is sufficient to do a company registration, you are not obliged to conclude a shareholder agreement in addition to the articles of association. However, this does not mean that you should do without one, it is often prudent to draft one. In practice, it is very common in SAS.

Can the shareholders' agreement be terminated?

When drafting the shareholders’ agreement, the partners must determine the duration during which this agreement will produce legal effects. In practice, it can be a:

➤ Fixed term, i.e. the partners will set a specific date or decide on the occurrence of a certain event from which the partnership agreement will be terminated
➤ Indefinite duration, i.e. without a precise deadline

Whether the duration of the partnership agreement is fixed or indefinite, the agreement remains valid from a legal point of view. However, the indefinite term involves more risks.
Since the indefinite duration of the partnership agreement is perfectly valid from a legal point of view, it can be deduced that there is no maximum duration provided for by law with regard to the partnership agreement.

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