A shareholders’ agreement is a key legal document in any company with more than one shareholder. It sets out the framework governing the relationship between the shareholders, their rights and obligations, the management of the company, and the process for dealing with future changes or disputes.
In the UAE, many businesses begin on the basis of trust and commercial understanding. However, as the business develops, issues can arise in relation to control, funding, profit distribution, transfer of shares, and exit. A properly drafted shareholders’ agreement helps address those issues at the outset and provides greater legal and commercial certainty.
At a preliminary level, a shareholders’ agreement will typically cover the following:
Shareholding Structure:
The agreement should clearly record the ownership structure of the company, including each shareholder’s interest and any rights attaching to those shares.
Governance and Reserved Matters:
It should define how the company will be managed and identify the matters that require shareholder approval, such as changes to share capital, major borrowing, disposal of significant assets, or admission of new shareholders.
Funding and Profit Distribution:
The agreement should address capital contributions, future funding requirements, shareholder loans, and the principles governing profit distribution.
Transfer of Shares and Exit:
It should regulate when and how shares may be transferred, and include appropriate protections relating to exits, including pre-emption rights, lock-in arrangements, and other transfer restrictions where appropriate.
Deadlock and Dispute Resolution:
Where shareholders have equal or near-equal influence, the agreement should include mechanisms for resolving deadlock and specify the governing law and dispute resolution process.
Protection of Business Interests:
Depending on the business, the agreement may also include provisions relating to confidentiality, non-compete obligations, non-solicitation, and intellectual property.
Final Remarks:
A shareholders’ agreement should not be treated as a formality. Properly drafted, it is an important corporate governance and risk-management tool that helps protect the business and its shareholders as the company evolves.
“Careful structuring at the outset can provide clarity, reduce the scope for dispute, and support the long-term stability of the company”.