Other provisions. As a general rule, shareholder agreements also contain additional provisions for other key aspects of the business. Shareholder disputes can often arise when one group wants to sell the transaction and the other group does not. The drag-along and tag along clauses can help solve this problem and ensure that an agreement can continue. First, Drag-Along`s clauses guarantee that a minimum percentage of shareholders (e.g. B 75% or more) wants to sell their shares to third parties, so that they can force the remaining minority shareholders to sell on the same terms to ensure that the third party can obtain 100% of the shares. Conversely, Tag Along rights require that a shareholder who sells his shares include other minority shareholders on the same terms. This ensures that these minority shareholders will not be “removed from the agreement.” For example, when an investor buys preferred shares in a company for $20 each, converted one by one into common shares, and the company then proceeds with a new set of capital increases that values the common shares at $15 each (a decrease), the investor`s shares will be depreciated (economic dilution). The investor could not convert his preferred shares into common shares without losing $5 per share.
An anti-dilution economic provision would protect that investor by stating that if the company issues shares at a lower price than the previous round in which that preferred shareholder invested, it can obtain more common shares if it converts to make a total value. The above does not summarize all the important clauses that a shareholders` pact should contain. Some other widely recognized clauses relate to drag-along rights, liquidation preferences and debt and equity agreements. Shareholders need to meet and discuss their expectations and commitments to the company before a watertight shareholder contract can be developed. Shareholder agreements are different from the company`s statutes. If the statutes are mandatory and the management of the company`s activity, a shareholders` pact is optional. This document is often developed by and for shareholders and sets out certain rights and obligations. It can be very useful if a company has a small number of active shareholders. A cash call often occurs as a last resort.
As a general rule, cash call clauses provide that where the company needs additional funds and this financing cannot be obtained outside, shareholders are required to make the company available in a barbaric manner in relation to their holding of shares. These sha provisions generally determine whether cash calls are structured as genuine sale of shares, shareholder loans or stock convertible loans. Non-compete clauses are often included in shareholder contracts. By specifying when and how a shareholder may engage in competing activities during and after having been a shareholder of the company, it removes any ambiguity that may result from the absence of explicit restrictions.
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