Insights: Corporate Governance and Shareholders Agreements

A shareholders’ agreement is an agreement entered into by the shareholders of company which stipulates the respective rights and obligations of the parties. The agreement can regulate the shareholders voting rights, protect a minority shareholder`s interests and provide how a company is going to be run.

A shareholder’s agreement can also provide for other eventualities such as:

• financing
• management
• dividend policy
• regulate the sale/transfer of of shares
• provide for deadlock situations and
• valuation of the shares.

It is usual for the terms of a shareholders’ agreement to be incorporated into the articles of association (“Articles”) of a Cyprus company.

A shareholders’ agreement provides a contractual remedy if its terms are breached. The Articles may provide a means to prevent a breach from occurring in the first place.

If a Shareholders agreement does not exist, any disputes between shareholders/ directors will be settled by what is provided in the Articles.

Reliance on the standard Articles alone may result in:

• a director being removed by the shareholders by an ordinary resolution;
• a change of the nature of the business;
• the articles being amended by the majority shareholders – this may result in any protection afforded to a minority shareholder in the articles being extinguished;
• deadlock occurring .

A well drafted shareholders’ agreements will contain provisions which pre-empt disagreements and sets out appropriate ways for disputes to be addressed.