By: BLegal – Panayiotou Shamma LLC
The Importance of Shareholders Agreements in Business Partnerships
In today’s commercial world more and more people are partnering up through corporate mechanisms to carry out their business or trade.
The benefits of setting up a company in Cyprus have long been analysed and established. Partnering up with someone is the sensible thing to do especially if the qualities / knowledge / resources of the one partner complement the other’s.
For example, one partner may be a trained football coach and the other an aspiring investor wishing to establish a football academy; or a baker and a restaurant owner; a litigation lawyer and a commercial lawyer. All of them wish to make their dreams a business reality and by holding each other’s hand they reach for their own stars. But what happens when the honeymoon is over?
This is the reason why shareholders agreements are so crucially important. Having a properly drafted shareholders agreement from the outset of the business relationship helps resolve most of the problems that will be faced later in the company’s life. It acts as a prenup, ensuring that the shareholders’ rights are safeguarded throughout their business relationship, including in the event the business partners decide to go their own way, whether amicably or otherwise.
A shareholders’ agreement is a simple contract between the shareholders and therefore can deal with all aspects of the relationship between the parties if required, including the personal rights and obligations of shareholders (for example, how they will exercise their voting rights).
The shareholders’ agreement would normally cover some of the following aspects of the company and its day-to-day operations:
- How the company is to be managed, the composition of the board of directors and other management arrangements.
- The division of power between the parties and the extent of their influence over the management of the company.
- Capitalisation and funding (initial and ongoing) or other contributions of the parties (for example, intellectual property rights, know-how, secondment of staff, provision of premises).
- The terms on which any party can transfer its shares to a third party.
- How to deal with disputes and deadlock between the parties (including compulsory transfer events and drag along and tag along rights).
- Provisions for unwinding a deadlock in a 50:50 joint ownership.
- Minority protection, if any (for example, veto rights on certain matters, also known as “reserved matters”).
- Restrictive covenants on the company and the participants.
- Confidentiality.
There’s no better way to solve a problem than by addressing it on paper before it even arises. Amicably, during a time when no grievances exist between partners. A time when reason and clarity prevail, and when inspiration and bold ideas are flourishing. That is the moment to act.
We, at Panayiotou Shamma LLC, have the knowledge and expertise to help you set in place the perfect shareholders agreement suitable to your specific requirements. Feel free to get in touch with us at [email protected] for further information.
