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Shareholder agreements in singapore

WHAT IS A SHAREHOLDER AGREEMENT?

A shareholder agreement supplements the company constitution and sets out the understanding of the various business parties. It specifies the basic rules for the management of a company to ensure the proper process of the business. Shareholder agreements have meant to regulate the rights and powers of the different parties, including the shareholders, directors, and investors of the company.

TYPES OF SHAREHOLDER AGREEMENTS

  • Some of the shareholders;
  • All of the shareholders; and
  • Shareholders and the company.

One advantage of including the company in a shareholder agreement is that the company directly undertakes the obligations in the agreement, making enforcement of the agreement’s terms easier.

However, a disadvantage of doing so is that the company’s consent may be required in the event where the shareholder agreement needs some amendments.

WHY MIGHT YOU NEED A SHAREHOLDER AGREEMENT?

A shareholder agreement can be used to complement the company constitution that may not be adequate to swathe the company’s precise business requirements.

This is especially if the company made use of the default constitution template provided by the Accounting and Corporate Regulatory Authority and didn’t amend it to ensemble its needs prior to filing the constitution with ACRA.

BENEFITS OF HAVING SHAREHOLDER AGREEMENTS

The benefits of having shareholder agreements are as follows:

  • Unlike the company constitution which can be changed through the casting of votes, the agreement of a shareholder can only be altered with the approval of all parties to the agreement.
  • A shareholder agreement is not open for public inspection, unlike the company constitution.
  • A shareholder agreement can spell out the rules governing matters not covered by the company constitution.
  • A shareholder agreement can be used to attract investors by granting greater investor protection and specific investor rights.
  • A shareholder agreement can be used to increase the company’s competitiveness, or to conserve the first-mover benefit, by identifying discretion and non-competitive compulsions.

LIMITATIONS OF HAVING SHAREHOLDER AGREEMENTS

A shareholder agreement is generally not enforceable by shareholders who are not parties to the agreement. There is generally no way to induce the company to comply with the terms if the company is not a party to the agreement unless all the terms are incorporated into the company constitution.

In contrast to the company constitution, which binds all the shareholders of the company, it only binds the contracting parties. New shareholders will have to involve in signing in the shareholder agreement according to the terms.

WHAT TERMS SHOULD A SHAREHOLDER AGREEMENT CONTAIN?

The contents of shareholder agreements depend on the needs of the parties to the agreement. Some shareholders prefer an uncovered, efficient agreement that is attached with a common sense application of its terms and some of them prefer to go into detail and spellbound every responsibility in the procedure of the company.

Eventually, shareholder parties have the final rights and freedom to utter the terms of shareholder agreements as they please to conform to their needs.

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