The main elements you need in a shareholder contract are: share transfers: the agreement should determine when and how the shares will be sold. It must be determined whether shareholders can force another shareholder to sell their shares. These clauses are called drag along and tag along rights. This explanatory and empirical presentation has a normative impact on some of the most fundamental debates in corporate law. Thus, understanding shareholder agreements imposes two essential distinctions in corporate law: that control of the board of directors should be accompanied by fiduciary duties, while the exercise of contractual rights should not take place, and that shareholders negotiate discretionary “residual rights”, while other stakeholders, such as creditors, protect themselves contractually. The extensive use of contractual rights by shareholders requires us to review the type of control on both fronts. It also raises the fundamental normative question of whether it is desirable for shareholders to contractually redeploy exercise rights that are otherwise related to share ownership and the corporate charter. Shareholder agreements may do so for reasons based on case law. The limits of the parties` freedom to design the corporate charter and statutes are the generous but ultimately limited legal system provided for by the Delaware General Corporation Law (“DGCL”). Shareholder agreements should not be so limited; Instead, they sometimes set only the general limits of contractual freedom – the public order of the state, here Delaware. Why this unequal treatment? As contracts, shareholder agreements are a creature of the parties` effective agreement and can only be amended with their (late) consent.
On the other hand, the Charter and the statutes can be modified by a collective decision that submits the rights of a particular shareholder without consent. Delaware courts take the difference seriously: there are rights that cannot be taken from a shareholder, but that he can do without personally. The provisions of the statutes of a private company and its statutes govern the rights of shareholders, including the right to vote on corporate affairs. With state corporate laws, these provisions may restrict shareholder voting rights. When a company goes public, the rights of shareholders are determined by the company, but must follow the rules and rules of the Securities and Exchange Commission (SEC) as well as all the rules established by the stock exchange (s) that lists the shares of the company. Voting limitation clauses are clauses in which one or more shareholders of the company agree to limit the number of votes they will have at the general meeting. In general, they tend to “democratize decision-making by balancing the importance of capital and reducing the censoring aspect of voting.” [4] [5] In some cases, they can also be interpreted as a defence mechanism against hostile takeovers. [6] [8] Like its inclusion in the company`s by-law, its application to all shareholders and its application to all voting titles.
It is important to note that a shareholders` pact does not only exist between the shareholders of the company, but also involves the company itself as a party, which obliges the company to act in accordance with its rules. First, I explain the specific legal role of shareholder agreements. The legal law of companies gives the board of directors authority over corporate affairs and justifies this power by electing shareholders by the board of directors.