How you can properly design a shareholders' agreement

Introduction

With the registration of the stock corporation in the commercial register, the first step towards independent activity has been completed. If several founders are involved, the question now arises as to how cooperation among the shareholders should be regulated. A carefully drafted shareholders' agreement forms the foundation for successful cooperation between the shareholders and protects the interests of all parties involved.

This private contract regulates key aspects such as voting rights, profit distribution, and sale restrictions. It prevents potential conflicts and ensures the long-term stability of the company.

This article provides you with a comprehensive overview of the key aspects of the shareholder agreement and its importance for corporate governance:

• What is a shareholders' agreement?

• Contents and clauses

• Benefits and challenges

• Practical tips

• Conclusion

What is a shareholders' agreement?

A shareholders' agreement is a private contract between the shareholders of a stock corporation. It supplements the legal and statutory provisions with additional agreements between the parties involved.

The shareholders' agreement binds only the signatory parties, namely the shareholders, and has no effect on the company or third parties.

Key aspects of possible shareholder rights and obligations within a shareholders' agreement:

• Exercise of voting rights in the general meeting

• Restrictions on the sale of shares

• Pre-emptive and first refusal rights in share sales

• Non-competition clauses and confidentiality obligations

• Rules on profit distribution and dividend policy

Practical example:

The family stock corporation Müller & Co., a successful production company in the second generation, is facing the challenge of succession planning. The three Müller siblings are to take over management from their father. To avoid future conflicts, they sign a shareholders' agreement that regulates the following key points:

• Unanimity principle for strategic decisions

• Pre-emption rights of the siblings in case of share sales

• Definition of the valuation method for company shares

• Arrangements for even dividend distribution

• Clear assignment of competencies in management

Through these binding agreements, the Müller family was able to avoid potential disputes and ensure a smooth succession. The shareholders' agreement has proven to be a valuable tool for the long-term stabilization of the family business.

Contents and clauses of a shareholders' agreement

A shareholders' agreement can contain various clauses that regulate the interaction of the shareholders:

Restrictions on the sale:

• Determination of the conditions for the sale of shares

• Protection against unwanted new shareholders

• Definition of the process for determining company value in the event of a sale

Pre-emptive rights:

• Priority rights for existing shareholders in share purchases

• Rules for price determination

• Deadlines for exercising pre-emptive rights

Voting binding clauses:

• Agreements on unified voting

• Rules for strategic decisions

• Provisions for the election of the board of directors

  
  

The clauses can be individually adapted and often include:

• Profit distribution regulations

• Non-competition clauses

• Information rights

• Conflict resolution regulations

Advantages and challenges in designing a shareholders' agreement

A well-thought-out shareholders' agreement offers essential protection functions for the company. The focus is on preventive conflict resolution by defining clear action guidelines for potential disputes between shareholders. Furthermore, by established decision-making processes, the stability of corporate management and thus operational capability is secured. The contractual provisions also offer effective protection against hostile takeovers by preventing unwanted share sales to third parties.

Dividend policy plays a central role in the shareholders' agreement. This includes the establishment of minimum distributions for minority shareholders, determining the use of profits under various business outcomes, and achieving a balanced balance between reinvestment and distribution.

The greatest challenge in designing a shareholders' agreement is achieving a balanced arrangement of the provisions. The interests of all shareholders must be taken into account while maintaining flexibility for corporate decisions. Furthermore, legal certainty of the agreements is of crucial importance. A professionally designed shareholders' agreement creates the necessary balance between freedom of action and binding structures for successful business development.

Practical tips for creating an effective shareholders' agreement

The creation of an effective shareholders' agreement can be divided into clear steps:

1. Survey of the shareholder structure

• Identification of all involved parties

• Determination of respective shareholdings

• Clarification of individual needs and objectives

2. Define core elements and draft the contract

• Voting binding agreements

• Restrictions on sale

• Valuation methods for company shares

• Rules on profit distribution

3. Signing by shareholders

• Careful review of all contract documents by each shareholder

• Signing by the shareholders

• Archiving and secure storage of the signed contract

Due to its complexity and legal relevance, the shareholder agreement should be drafted by an experienced business lawyer.

Personal advice and support by a business lawyer ensure that the shareholders' agreement is optimally tailored to the specific needs of the company and its shareholders and minimizes potential legal risks from the outset.

Conclusion on the shareholders' agreement

A professionally designed shareholders' agreement is an indispensable tool for the long-term success of a stock corporation. It creates clear structures, preemptively regulates potential conflicts, and secures the interests of all parties involved. The careful drafting considering individual needs and legal frameworks is essential. With expert support, the shareholders' agreement becomes the stable foundation for successful business development.