How Shareholder keep his/her rights in a corporation? For any business shareholders hold the key.

But shareholder needs security. On a legal note law provide certain parameters which enable the shareholder to safeguard his interest. In Ireland Shareholders agreement is the legal covering for every minority and majority shareholder. Foundation for this agreement is laid down as per Irish companies act 1963 and contract law. These agreements are suitable for any private company in Ireland irrespective of business type. It serves as mean to safeguard shareholder rights without disrupting business itself. But still why a shareholder would go for such legal covering. Now this is genuine concern. There can be numerous reasons first of all and quite obvious one as well, is the directors and members confrontation. Though directors are appointed by members vote but point of dissent arise when directors compensation needs to be decided. On top of that if the member is also a shareholder then obviously possibilities are there that a director will get a better cut with respect to other shareholders. Also in case of ownership of the shares, be it change of hands or death of existing shareholder, this shareholder agreement provides working mechanism for new owners providing legal cover to the existing owners. However, provisions that prevent the transfer to certain specific classes of people may be contentious. But how this agreement will help if there is a change in business line Keeping in view recent business developments globally there is every possibility that companies can change their course of action overtime. In situation like these shareholders and especially minor shareholders are somewhat apprehensive of new developments. Quite understandably so because you never know if a majority shareholder will be buying the stocks and trying to conduct hostile takeover, or there is a possibility your Profit dividends might take a dent. In situation like these this shareholder agreement, because of its formulation requires approval of the rest of shareholders hence cutting on chances of any such development. Simply we can say that decision making because of this agreement will not rest with directors, rather shareholders hold the key. And How a minority shareholder is safeguarded by law? These agreements are extracted from sections of company law and contract law of Ireland. In this case section 143(4) of companies act 1963 refers to a special resolution in case of any change to the company Irish law permits the shareholders to make arrangements for the governance of the company by agreement, such as granting a specified minority shareholder the right to appoint a director or directors. The principal statutory mechanisms to ensure the participation of minorities in a company are the statutory rule that certain matters must be decided by special resolution (which requires a 75% majority of the shares carrying voting rights) and the statutory right of any shareholder (even a shareholder with only one share) to apply to the court for redress in cases of the oppression of a minority by the directors

or the other members. That means an agreement can be based out of these acts and you can chose terms out of them which serve your purpose. What contents tend to be included in shareholders agreements in Ireland? A shareholders agreement may cover such matters as: Matters which require shareholder consent or special majorities; Shareholders information rights; Restrictions on the transfer of shares including put and call options, drag-along rights and tag-along rights; and Right to nominate directors.

And what should be the key components of document? As mentioned earlier this agreement is used for all kinds of businesses so its core ingredients defines the business and the line of actions for all the possibilities related to management, exit scenarios and induction of new possibilities. Following are the main components

Company formation. A change in management structure. Rights of the shareholders. When directors become incentivized with share capital (or options). Clauses which laydown directors role, create balance of power between majority and minority shareholders so as to avoid forced decisions from them. Sale or transfer of shares to a new shareholder subject to his record for bankruptcy or any other legal obligations that bares him to become a part of company. Increasing the share capital of the company. Exit mechanisms, Key man insurance, publicity or confidentiality of the deal. Entry of a new shareholder or stakeholder (such as a business angel or venture capitalist). On the injection of debt into the business. Death or liquidation of a current shareholder. Use of shareholders assets in the company.

But all that needs to be formalized beforehand. Line of business needs to be clarified so as to avoid any inconvenience at your end no matter if you own the company or are just a small part of it. Key is that you must be safe legally.
About the Author:

Haider is an independent writer who is interested in the convergence of technology and law. He writes about the legal issues that face individuals and small and medium sized businesses, emphasising how the Internet has changed practice of the law and the delivery of legal services.