A shareholders` pact is in fact a contract between the shareholders of a company and offers additional protection with respect to ownership and procedures to be taken with respect to certain decisions. While some of the issues to be addressed in the shareholders` pact might be covered by the statutes, it may be preferable to include these provisions in the shareholder contract, as it is a confidential document – when the statutes are publicly available. This article describes the main provisions of a shareholders` pact. Board of Directors For many companies, the day-to-day operations of the company are the responsibility of the management team, with the board of directors playing a strategic supervisory role. In large companies, the distinction between the board of directors and the management team is obvious; However, in small businesses, they are generally the same. In the case of the latter companies, a shareholders` pact would normally have specific provisions regarding the composition of the board of directors, the number of persons authorized by the board of directors, provisions relating to non-executive directors and an electoral mechanism for directors, including the right for certain family members or shareholders with a certain percentage of participation to make certain appointments to the board of directors. Voting Rights Some requirements of the Corporations Act stipulate that certain decisions must be made by majority (51%) z.B. a decision on the increase of the company`s authorized capital, while other decisions require a majority of 75%, for example. B, changes to the memorandum and the statutes of a company or a change in the name of a company. Surprisingly, other decisions that could have a significant impact on a business, such as financing or strategic objectives, are not within the jurisdiction of the Corporations Act and are therefore left to the board of directors, unless there are provisions to the contrary. A shareholder pact may provide the company with additional protection with respect to important decisions, such as strategic acquisitions or credit facilities, decisions to repay directors` loans or shareholder loans, decisions to borrow or approve a specified amount, decisions to transfer, sell or dispose of a portion of the business, decisions to pay a dividend or distribution to members of the company.
This can be achieved by inserting a clause in the shareholder contract that provides that these and other decisions take effect only if they are agreed by a certain percentage such as 75% or even 90%. In addition, a shareholder contract can only be amended with the unanimous agreement of all shareholders, whereas a change in the statutes requires only a majority of 75% and a shareholder contract therefore grants additional protection to minority shareholders. Share transfer A shareholder pact may include provisions relating to the portability of shares, either to impose restrictions or to allow the nature of transfers that would be permitted. The rationale for these provisions is: Control: The provisions may provide that certain transactions cannot be made without the consent of a specific shareholder.