In a startup or a new business enterprise involving more than one individual who contribute financially or otherwise, pays to ensure that their contribution is acknowledged in a secure and accountable manner. “Shareholder’s Agreement” (SHA) is one way in which such a security can be awarded to all stakeholders.
The definition of Shareholder’s Agreement is A binding contract between the shareholders of a corporation, defining the shareholders' rights, privileges, protections and obligations. The shareholder's agreement usually includes the corporation's articles of incorporation and bylaws.
Shareholder Agreement provides the exact ownership stake each partner will enjoy along with incumbent obligations. Even non-company contents like management rights, licensing
…show more content…
Restrictions on transfer of shares (right of first refusal, right of first offer).
6. Forced transfer of shares (tag-along rights, drag-along rights) and curtailing of further issue of shares.
7. Defining Shareholding Threshold: There can be a minimum shareholding a party must have to enjoy the rights as under the Shareholding Agreement.
8. Determining and allocating special rights to certain shareholders: For instance if a venture capital or private equity invests in an enterprise, they would seek preferential treatment unless one is a Google or Facebook!
Mechanism for Regulating Share Transfers
Shareholder Agreements offers a mechanism to the founding members of a company to regulate (and sometimes restrict) the shares allotted to the stakeholders. Though the restrictive covenants do not carry much favour by courts unless they form part of the company’s bylaws, yet they offer a way in which owners of a company can invite and incentivize talent – all the while regulating the flow of actual stake. The policies of a company, and sometime even ownership, can be jeopardized in an unregulated scenario.
Some clauses in this regard often found in a Shareholders’ Agreement to regulate the transfer of shares
In the Introduction of the article of the author Lynn A. Stout pointed out the two arguments in regard to shareholder primacy that were made by Adolph A. Berle and Merrick Dodd.
This paper will have a detailed discussion on the shareholder theory of Milton Friedman and the stakeholder theory of Edward Freeman. Friedman argued that “neo-classical economic theory suggests that the purpose of the organisations is to make profits in their accountability to themselves and their shareholders and that only by doing so can business contribute to wealth for itself and society at large”. On the other hand, the theory of stakeholder suggests that the managers of an organisation do not only have the duty towards the firm’s shareholders; rather towards the individuals and constituencies who contribute to the company’s wealth, capacity and activities. These individuals or constituencies can be the shareholders, employees, customers, local community and the suppliers (Freeman 1984 pp. 409–421).
This separation between ownership and managerial control in this instance can be problematic as the principal and the agents have different interests and goals. In a large publicly traded corporation such as NOL/APL, shareholders (principals) lack direct control when the CEOs (agents) make decisions t...
The management of a public company is democratic and for that fact the shareholders are able to vote off directors and elect directors. The minority shareholders are protected under the companies act for domination and mismanagement.
As a consequence of the separate legal entity and limited liability doctrines within the UK’s unitary based system, company law had to develop responses to the ‘agency costs’ that arose. The central response is directors’ duties; these are owed by the directors to the company and operate as a counterbalance to the vast scope of powers given to the board. The benefit of the unitary board system is reflected in the efficiency gains it brings, however the disadvantage is clear, the directors may act to further their own interests to the detriment of the company. It is evident within executive remuneration that directors are placed in a stark conflict of interest position in that they may disproportionately reward themselves. The counterbalance to this concern is S175 Companies Act 2006 (CA 2006) this acts to prevent certain conflicts arising and punishes directors who find themselves in this position. Furthermore, there are specific provisions within the CA 2006 that empower third parties such as shareholders to influence directors’ remuneration.
Bibliography: Turnbull, S. (1997). Corporate governance: its scope, concerns and theories. Corporate Governance: An International Review, 5 (4), pp. 180--205.
Each party plays his parts – Role of key players like owners, Board of directors and staffs
By definition, ‘legal personality’ means the company is distinct from its members and it is not the agent of those shareholders. When there is an insolvency of the company, the members of the company is not liable for that as there is a separate legal entity. Salomon is a landmark case which first set out this principle and it is mainly about limiting the liabilities of the whole in order to protect the corporate groups by structuring themselves in ways when the company went insolvent. Since then, most of the traders are trying to attain the benefits from the Salomon principle by choosing their company limited by shares. As a matter of fact, the separate nature of the corporation from its members has been recognized in the 17th century and the early example would be seen in Foss v Harbottle. Although the courts were avid to apply this principle, it is notable that they deviated ever so often from that by ‘piercing the corporate
Although primary objective for managers is to maximise shareholders’ wealth, but many firms are started to focus on other stakeholders’ interests in recent years. Company can prevent transfer the damage of stakeholders’ wealth to shareholders when focus on stakeholders’ interests. In other words, “social responsibility” for the companies is to maintenance stakeholders’ relations in order to provide long-term interests to shareholders. By this way, conflict, turnover and litigation of stakeholders can be minimise. Obviously, company can achieve their primary objective by cooperation with stakeholders instead of conflict with stakeholders (Smart, Megginson, Gitman, 2002).
[7] Cavendish Lawcards Series (2002) Company Law (3rd edn), p.15 [8] [1976] 3 All ER 462, CA. [9] Griffin, S. (1996) Company Law Fundamental Principles (2nd edn), p.19 [10] [1990] Ch 433. [11] Lecture notes [12] Lecture notes [13] [1939] 4 All ER 116.
Nottingham Trent University. (2013). Lecture 1 - An Introduction to Corporate Governance. Available: https://now.ntu.ac.uk/d2l/le/content/248250/viewContent/1053845/View. Last accessed 16th Dec 2013.
According to Corporation Act 2001 s124(1), it illustrates that ‘’A company has the legal capacity and powers of an individual both in and outside the jurisdiction” . As it were, company as a legal individual must be freely with all its capital contribution shall embrace liability for its legal actions and obligations of the company’s shareholders is limited to its investment to the company. This ‘separate legal entity’ principle was established in the case of Salomon v Salomon & Co Ltd [1987] as company was held to have conducted the business as a legal person and separate from its members. It demonstrated that the debt of company is belonged to the company but not to the shareholders. Shareholders have only right to participate in managing but not in sharing the company property. Besides ,the Macaura v Northern Assurance Co Ltd [1925] demonstrates that the distinction between the shareholders and company assets. It means that even Mr Macaura owned almost all the shares in the company, he had no insurable interest in the company’s asset. The other recent case is the Lee v Lee’s Air Farming Ltd [1961] which illustrates that the distinct legal entities between employee ad director allows Mr.Lee function in dual capacities. It resulted that the corporation can contract with the controlling member of the corporation.
There has been a drive towards corporate governance which has been driven by a greater need for shareholder protection. If investors feel well cushioned then there is a higher chance that t...
The office of the Director of Corporate Enforcement (ODCE, 2015), Ireland defines Corporate Governance as “the system, principles and process by which organisations are directed and controlled. The principles underlying corporate governance are based on conducting the business with integrity and fairness, being transparent with regard to all transactions, making all the necessary disclosures and decisions and complying with all the laws of the land”. It is the system for protecting and advancing the shareholder’s interest by setting strategic direction for the firm and achieving them by electing and monitoring the capable management (Solomon, 2010). It is the process of protecting the stakes of various parties that have their interest attached with a company (Fernando, 2009). Corporate governance is the procedure through which the management of the company is achieving the goals of various stake holders (Becht, Macro, Patrick and Alisa,
Individuals joined together to make profits dating back to the 16th and 17th century, by funding explorers to the new world looking for wealth, riches, and fortunes. These early joint ventures had no formal agreements or laws governing their transactions. A simple hand shake and verbal agreement was sufficient. The early laws of incorporation came in to being in the late 19th century, but there was not corporate governance. During the Roaring ‘20’s the United States experienced great economic growth with the average American investing in the Stock Exchange. The failure of the Stock Exchange and the Great Depression called attention to how companies were governed, but there still was a lack of a presence of corporate governance.