If you have opted to incorporate a company to run your business then it would mean you will need to manage the relationship of the shareholders.
In this scenario it wise as the owner of the business to get into a shareholders agreement with the other parties that will own this business.
A shareholders agreement will assist and dictate what, when and how the company should run as envision by the shareholders.
The principles and approached usually will then trickle down into the constitution of the company and the instruction given by the shareholders to the directors subject to the limitation set by the laws.
To help you familiarize with the content of a shareholders agreement, here is a quick recap of the usual terms and definition used in a shareholders agreement here in Malaysia.
Agreement Effective Date:
The Effective Date means the date where the parties to the agreement agree when the terms of the agreement will take effect.
Condition Precedent Prior Before Agreement Becomes Effective:
Condition Precedent mans the terms, scenarios and items that needs to be fulfilled before the terms of the agreement can take effect or the agreement becomes effective.
Proportion Of Shareholding In The Company:
Shareholding proportion means the respective proportion of shares which are to be held by each of the Shareholders in the Shareholders Agreement.
Obligation On Additional Equity Contribution:
The obligation in relation to put in additional capital if required by the Company hence additional equity contributions.
Shareholders’ Objectives:
The goals that the company’s shareholders want the company to achieve or execute.
Company Business Objective:
A result that a company aims to achieve in its business activities.
Issuance Of Shares:
Distribution of shares in a company to the shareholders.
Offer To Subscribe To Shareholders:
An offer to shareholders to purchase or subscribe shares in the company.
Offer To Subscribe To Third Party:
An offer to third parties to purchase or subscribe shares in the company.
Transfers Of Shares:
Where a shareholder transfers his shares in the company to another shareholder.
Lock Up Period:
A period in which the company’s shareholders are prevented from selling shares.
Basis Of Share Pricing:
Base of share value
Adherence To This Shareholders Agreement:
Obeyance to the terms of the Shareholders Agreement.
Pre-Emption Right:
The rights of existing shareholders to buy new shares in the company from another shareholder, before the shares are offered to outsiders.
Tag - Along Rights:
The rights of minority shareholders to participate in any deal that the majority shareholders has gotten into.
Drag - Along Rights:
The rights of majority shareholders to compel minority shareholders to sell their shares.
Board Directors Appointment:
The appointment of any directors to be a member of the Board of Directors.
Composition Of The Board Directors:
The structure of the Board of Directors
Removal Of Directors:
The removal of a director before his/her period of office has expired.
Chairman to the Board:
A chairperson of the Board who is elected among the directors. Sometimes it may also mean the Chairman appointed between the Shareholders.
Board Meeting Quorum:
The minimum number of Board Directors that must be present in a Board Meeting before any decisions are made.
Communication Method:
The way of communication among shareholders.
Telephone Or Electronic Means:
The way of communication among shareholders by telephone or by e-mail.
Directors’ Meetings:
Meetings held by directors
Circular Resolution:
A resolution of the company which is passed without a face-to-face meeting being held.
Decisions Of The Board:
Decisions made by the Board Directors.
Appointment Of Alternate Director:
The appointment of a person by another director to attend meetings or perform duties on his behalf.
Directors’ Obligations:
The duties that must be fulfilled by the Directors of the company.
Shareholders’ Meetings:
Meetings which are held by shareholders.
Annual General Meeting (AGM)/ Extraordinary General Meeting (EGM):
An AGM is a members’ general meeting which is held by a company each year. An EGM is any meeting other than an AGM which involves the discussion of the company’s business matters.
Quorum:
A minimum number of members that must be present at the meeting.
Reserved Matters:
A set of reserved matters in which its decision requires unanimous voting by all of the shareholders in the company.
Deadlock:
A situation where the shareholders, especially with equal voting rights, disagree on certain decisions and are unable work together.
Conciliation:
A method to resolve disputes among shareholders through a conciliation process.
Effect Of Deadlock:
The effect of a situation where there is a major disagreement between shareholders where it is impossible for a decision to be made.
Referral For Valuation:
The referral of a valuer to determine and certify the value of the shares.
Funding Resource:
Shareholders’ source of funds
Registered Office:
The office that is being registered under SSM.
Company Secretary:
A professional role in a company who is involved in the Company’s Management i.e. handles all the paperwork, statutory documents and procedural matters of the company.
Auditors:
An independent professional person who is qualified to inspect, review and verify business records of a company to ensure ‘true and fair’ account of the company’s financial performance.
Financial Year, Accounts:
A one-year period of time that a company uses for accounting purposes and preparation of its financial statements
Company Constitution:
A set of rules and guidelines for the administration of the company ie. the relations between members, company’s business.
Dividend Distribution Policy:
The company’s policy in distributing its dividend to its shareholders.
Warranties and Representation:
Contractual statements which are relied on by the parties of the agreement.
Publicity/Confidentiality:
The obligation of shareholders to maintain the confidentiality of the information in respect to the agreement.
Duration Of Agreement:
The period of time which the agreement is effective and legally binding.
Event of Default:
Events where the shareholder defaults or fails to fulfil his obligations under the agreement.
Non-Defaulting Shareholders Right To Terminate:
The right of non-defaulting shareholders to terminate the agreement against the defaulting shareholder.
Termination Of Agreement:
The event in which the agreement is terminated or is no longer effective.
Effect of Termination:
Legal effects upon the termination of the agreement.
Non-Competition:
Prevention from using the company’s intellectual property and trade secrets to start a rival business or to contribute to the company’s competitors.
Remedies And Option To Purchase In Event of Default:
Remedies and options for shareholders to purchase the shares of the defaulting shareholders in event of default.
Price For The Defaulting Shareholder’s Shares:
The purchase price of the defaulting shareholder’s shares.
Governing Law:
The law applicable to the agreement.
Costs:
Costs incurred relating to the agreement.
Date Of Agreement:
The date when the agreement was signed.
Hope the glossary terms above helps. If you need any assistance on setting up a business, contact us. Our team are ready to assist you. Free consultation. No obligation.
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