A shareholders` pact, also known as the Shareholders` Pact, is an agreement between the shareholders of a company that describes how the company should be operated and defines the rights and obligations of shareholders. The agreement also contains information on the management of the company and the privileges and protection of shareholders. In particular, intellectual property can often have enormous value for a company, but little “worth” in the balance sheet. Net Lawman`s shareholder agreements place particular emphasis on intellectual property because the “hidden” value can be so high. Although most companies have not filed patents, intellectual property may include trade names, production methods, website names and copyrighted material. For a company, cash is not king, it is the cash flow that is king. In fact, operating cash flow is the lifeblood of any small business. Cash flows show how much money is available to keep the business active. It is therefore important that all provisions of the shareholder contract dealing with finances ensure that shareholder shares do not have a negative impact on the company`s cash flow. Financing is of the utmost importance, including: The shareholder contract is a contract between all parties who sign it and gives rights and obligations to those who become stakeholders in the company. It is a foundation on which a strong business can be built and will protect the interests of all parties involved if it is properly written.
If an agreement is poorly written, it can lead to disputes that are difficult to resolve between shareholders and can lead individuals to lose their fair share of business. It may seem obvious who are the parties to a shareholder pact: the existing shareholders. However, it is important to consider whether the company itself should become a party to the shareholder contract. In this way, shareholders can impose on the company direct obligations that they prefer in the shareholder contract (usually a private document) than the company`s statutes (a public document). In addition, the company itself would be able to impose the terms of the shareholder contract on shareholders. In the case of agreements, joint venture shareholders can decide exactly what the agreement is, in accordance with the common law. As the parties to a company have been talking together for some time already, the detail of what is agreed is often overlooked – with disastrous consequences. In our experience, the only way to cover the main alternative outcomes is to consider a large number of possibilities. We advise you to write a list of assumptions from your business plan, and then ask everyone what if, always with a view to the impact of different results on shareholders.
The key question is always: “Who has the power if?” However, note that restrictions affecting the value of shares, regardless of where they are set, have tax consequences when the shareholder is an employee of the company.