Shareholder agreements – Companies Act 2006

by gabriel13 on June 12, 2012

  • SumoMe

Below is a guest blog post regarding shareholder agreements under the Companies Act 2006 with some consideration of South African law.

A shareholder agreement is an officially binding contract consented to by each of the shareholders in an organization according to which they decide how their relationship as shareholders will be synchronized. It not only minimizes the disagreements between the shareholders, but also protects the rights of the shareholders. In private organizations, the function of a shareholders agreement is to define how and in what ways the company shall be controlled and managed by its employees or shareholders. The Companies Act 2006 identifies the shareholder agreement.

The Companies Act 2006 enables the organizations to take on the shareholder agreement. It is a confidential paper and does not require any registration. In South Africa, the Companies law affirms that the shareholder agreement needs to obey the terms of letter of incorporation. Whereas in the UK, the companies are free to draw the shareholder agreement according to articles of association. The shareholder agreement guarantees the smooth functioning of the business. Nobody can check the shareholder agreement since it’s not an open document. It’s not sited at the Companies House. It identifies the system for the internal associations of the organization. It elucidates how the share payment will take place, how the new share will be allotted and what will take place on the demise of the shareowner. It also states the method regarding the selection of the directors.

The shareholder agreement upholds the reciprocal trust among the shareholders. It allows shareholders to accept the given process for administering the affairs and management of the company. It’s also essential for it to be in express form. Basically, it’s an official document that reports the mutual considerations of the shareholders. It also protects the trade information of the organization. Articles of association don’t reveal the method for administration of the organization to the public. Generally the private corporations prefer it. It also makes sure that decisions will be taken according to the agreement. It is a document that makes sure that management and affairs of the organization will be taking place in line with agreed procedure. It not only encourages the shareholders, but also increases the level of confidence and trust between them.

The shareholder agreement is a flexible and important manuscript. Articles of association do not grant adequate information regarding the relationship of the shareholders. It clarifies the duties and rights of the shareholders. It also guarantees the safety of the shareholders. It’s pretty tough to amend it as contrasted to articles of association. Articles of association can be modified with seventy five percentage of the vote.

Nominal provisions

According to the Companies Act 1985, only registered members can apply their rights as shareholders of the company, such as the right to participate and vote at company conferences or hire a deputy. Part 9 of the 2006 Act brings in new provisions to enable indirect investors to use rights pertinent to shares. Section 145 allows the organization to include stipulations in its articles which will allow members to appoint another individual or individuals to enjoy all the particular rights of the member in connection to the organization. Where such an appointment has been made, anything obligatory or certified by any stipulation of the Companies Acts to be conducted by the associate may instead be performed by the person designated. The rights that can be conferred in this way are:

  • Right to be sent planned written declarations

  • Right to obtain notice of common meetings

  • Right to necessitate distribution of written declarations

  • Right to necessitate directors to organize a general conference

  • Right to assign a proxy to perform at a meeting

  • Right to necessitate circulation of declarations at an AGM

  • Right to be sent a print of the yearly accounts and statement

The company’s articles may allow a few but not all of these rights to be implemented by the nominated individual. It is made clear that the individuals nominated under Section 145 do not become eligible to inflict their rights openly against the organization. The registered member needs to implement the rights through the articles. Moreover, only the registered member can authentically relocate the shares. After a person has been nominated to use his rights, the nomination can be brought to a standstill by notice from the member and may even end if the person nominated expires or ceases to be present.

Author Bio: Gabriel Knight with his vast experience in the mortgage industry has been associated with the MortgageFit Community as a Mentor. Not only does he participate in the community forums to give his suggestions, but also makes his contributions through different articles on mortgage,property and finance. To know more about how much mortgage you can borrow, click here.




Latest posts by gabriel13 (see all)

Previous post:

Next post: