Are Shareholders Agreements Enforceable

  • April 8, 2021
  • Uncategorized

However, this flexibility can lead to conflicts between a shareholder contract and a company`s constitutional documents. Although laws vary from country to country, most disputes are generally resolved as follows: a company`s shares are often held by the company`s directors, senior executives and/or key employees. If they resign or leave for any reason, you will more than likely want them to sell their shares, otherwise they could continue to be entitled to dividends that would be generated by the shareholders in the works. A bank of the Bombay High Court had also ruled on the enforceability of a first instance refusal clause in a shareholders` pact. The High Court reviewed Section 111-A of Section 9 of the former Corporations Act. In essence, Section 9 states that the provisions of the Corporations Act, notwithstanding the contrary effects of the memorandum and the articles of a corporation or agreement it has executed, are effective and that such a provision is null and void in the memorandum, articles or any agreement to the extent that it is revulsed. The High Court found that “as section 111-A clearly applies to public companies, any agreement inconsistent with it would be nullified under Section 9 of the Corporations Act. As a result, the right of pre-emption provided for in the shareholders` pact was found to be unenforceable. In this regard, it should be noted that the agreements under Section 9 are only those that are enforced by the company. Therefore, this is not a situation in which the agreement only takes place between the shareholders.” The results of the terms of a shareholders` pact should be as follows: a private agreement between two or more members of a limited company would apply.

A common provision included in shareholder agreements to protect the interests of minority shareholders is the right of a minority shareholder to block the sale of a 50.1% stake, unless a similar offer has been made in advance for the 49.9% stake. A shareholder contract (Sha) is a contractual agreement between the shareholders of a company and has gained great popularity so that these agreements were specially designed to grant specific rights, impose firm restrictions on the provisions of the Companies Act, 2013 (2013). In the scenario in which the company is itself a party to the shareholders` pact, the agreement can be applied to the company in accordance with the principles of the contract.