Generic selectors
Exact matches only
Search in title
Search in content
Search Posts
Search in pages
Search Products
Filter by Categories
B-BBEE
Blog
Company Secretarial
Featured
General Business
General Interest
Investing in Property
Marketing
Personal Growth
Personal Wealth
Tax
Trusts and Estate Planning

Apart from the normal paragraphs that most contracts share (such as Definitions, Interpretation etc.) Shareholders’ Agreements usually have the following clauses –

Loan accounts

These clauses deal with shareholders’ loan accounts, when they will arise, their proportions, interest (normally a few points below prime), and repayment.

Guarantees

These clauses prohibit a shareholder from using his shares as collateral to secure a liability. They also deal with the circumstances and formalities relating to the establishment of any guarantees by or on behalf of the company.

Directors

These clauses determine the rights of each the shareholders to appoint directors, how the mecahnism works and whether the directors may appoint alternates.

Dividends

Although the declaration of dividends is the responsibility of the company’s Directors, as they are, in the case of entrepreneurial businesses, usually the same people as the shareholders, the agreement often sets out the dividend policy. Often these policies are too prescriptive (e.g. stating exactly what percentage of after tax profits will be distributed), especially when the agreement is drafted by someone with little commercial experience. However, a statement of intent can be useful as long as the Directors are left with discretion.

Sale of shares

It is important to distinguish between voluntary sales and forced sales (such as arising from death, disability, retirement, failure to perform etc.)

For voluntary sales, the price is negotiated between the seller and buyer(s).

For forced sales, we like to have a clear formula for the valuation (e.g. the Net Asset Value per tha last Audited Financial Statements, or four times the Net Profit after Tax per tha last Audited Financial Statements or something like that). This gives certainty under what are probably stressful circumstances.

Pre-emptive right

This defines the circumstances under which a shareholder may voluntarily sell his shares and gives the other shareholders the right to buy them. The matter is dealt with in the Memorandum of Incorporation of the company, so this clause only needs to deal with additional rights.

Come-along

If a majority shareholder receives an offer from a third party to buy the entire shareholding of the company and a minority shareholder does not exercise his pre-emptive right to buy the majority shareholder’s shares, then the minority shareholder is forced to sell his shares to the buyer on the same terms and conditions that he buys the majority shares.

Tag-along

If a majority shareholder receives an offer from a third party to buy his shares and a minority shareholder does not exercise his pre-emptive right to buy the majority shareholder’s shares, then the minority shareholder can insist that the buyer buys his shares on the same terms and conditions that he buys the majority shares.

If you would like a no charge meeting with our CEO, Derek Springett, feel free to check his diary and book a time that suits you.

Need a shelf company or CC, a tax clearance, VAT registration or B-BBEE certificate? We offer a wide range of such services here.

 If you would like a meeting with d

Need help with your Investments?

Contact us today or set up a free meeting with our CEO, Derek Springett, to discuss your options. We have been offering expert financial advice and business services since 1971. You can also visit our online store to see our list of financial services.