Does family-owned company require formal shareholders’ approval for issuance of shares?
“This is my family-owned company. Do we still need formal shareholders’ approval to issue shares?” Yes. Under section 75 of the Companies Act 2016, directors cannot exercise their power to allot shares without prior shareholders’ approval. This is a legal requirement even if all the shareholders are family members. Skipping …
Pay for proper legal advice when it comes to shareholders agreement
Most people I know are reluctant to pay for proper legal advice when it comes to shareholders’ agreements. Many assume shareholders’ agreements are just templates. However, in practice, especially in M&A or fundraising, these agreements must align with the Companies Act 2016 and other relevant regulatory requirements. Otherwise, what is …
Should departing directors and employees keep their shares?
In closely held companies, especially startups, founder-led businesses, and family-owned businesses, control over the shareholder base is critical. One common concern is that individuals who are no longer actively involved, such as former directors or employees, may continue to influence major decisions through their shareholding. This is where compulsory transfer …
How to avoid a deadlock when two shareholders cannot agree on the future of the company?
There are two shareholders. One shareholder wants to undertake an initial public offering (IPO) and listing of the company, while the other doesn’t. Without the right legal structure, this kind of disagreement can slow down the company or create a fallout between shareholders. The following are two practical legal tools …
Structuring shareholding in companies
Structuring shareholding affects shareholders’ control, rights and exit. The type of shares issued determines: · Who makes decisions · Who gets paid (and when) · Who gets what rights Below is a concise overview of two type of shares and how they serve different purposes: Ordinary Shares The most commonly issued type of …
When do you need a shareholders’ agreement?
It should be before there’s conflict, not after. The ideal time is: • when the business is starting out; or • when there is a new shareholder. Without it, even strong relationships can break down when there are changes. I’ve seen it happen when one corporate shareholder changes management. The …
When do you need a shareholders’ agreement?
Before there’s conflict, not after. The ideal time is when: – you’re bringing on your first investor – a co-founder is getting equity – someone new joins the shareholding. As the business evolves, it’s worth revisiting the shareholders’ agreement. Businesses change. So do people. Consider this real-life scenario. Two companies, …
Minority Shareholders Have Rights Too
Minority shareholders holding less than 50% of the voting shares in a company have certain rights provided under the Companies Act 2016 including the following rights: Shareholding of at least 5% Shareholder(s) of a private company representing at least 5% of the total voting rights may block reappointment of the …
Shareholders’ Agreement: Getting It Legally Right
A shareholders’ agreement is an essential agreement in M&A transactions involving more than one shareholder. Understanding the key legal provisions is the foundation for a solid shareholders’ agreement. The following are three legal provisions to keep in mind: 1. Quorum for general meeting (Section 328, Companies Act 2016 (“CA”)) Other …
Why You Shouldn’t Rely on Online Shareholders’ Agreement Templates
Drafting an effective shareholders’ agreement requires expertise in company law, shareholders’ rights and directors’ duties. It’s perplexing that some people think a shareholders’ agreement can be put together quickly and easily by using an online template and changing the parties’ names and a few details. While online templates are easily …