The Shareholders’ Agreement
Some of the shareholders of a limited liability company may participate in the company’s operations only by way of the capital invested in the company. Management of the company, decision-making and the position of shareholders are defined in the Limited Liability Companies Act. However, this doesn’t cover the whole variety of situations that might come up in business life and that’s why the legal provisions should be complemented with a shareholders’ agreement.
What is a Shareholders’ Agreement?
In most companies, the shareholders should conclude a shareholders’ agreement, in which they agree upon common rules in more detail than the Limited Liability Companies Act (“Companies Act”) and the articles of association provide for. Through a shareholders’ agreement, the parties agree upon the goals of the business as well as the obligations and rights between the parties.
A shareholders’ agreement may be concluded as confidential, unlike the articles of association, which is a public document and available for anyone at the Finnish Trade Register. Therefore, matters between the parties can be agreed upon confidentially by means of a shareholders’ agreement. A shareholders’ agreement may be concluded, for example, in startups, family-owned companies, joint ventures and companies that are administered and capitalized by private equity investors.
What Should be Agreed upon in a Shareholders’ Agreement?
The following matters are usually agreed upon in a shareholders’ agreement:
participating in the administration and management of the company
access to information regarding the company
decisions on e.g. investments, selecting key persons and agreements with long-term effects
dividends and the use of other assets that may be used for profit distribution
principles regarding the employment and remuneration of shareholders
financing and the use of the company’s assets
principles to be followed in transactions between the company and the shareholders and possible restrictions to transferability
possible rights of first refusal and tag-along/drag-along in case of an exit
competing activities between the shareholders and the company
forfeiting the right of possession or redemption of shares in certain situations
provisions on breach of the contract
It is possible to deviate in a shareholders’ agreement from some of the provisions of the Companies Act regarding the relationship between the parties. For example, the shareholders may waive such rights they have in accordance with the Companies Act, or take over such obligations, that they would otherwise not have based on their shareholder position.
The shareholders’ agreement is not subject to any formal requirements, but in practice it should be concluded in writing. A breach of the shareholders’ agreement does not result in the invalidity of the company’s decisions, but the breaching party may be liable for damages resulting from the breach.
In some situations, it may be reasonable to bind the company to the shareholders’ agreement as a party. In this case, the board of directors of the company shall make a decision on adhering to the shareholders’ agreement. The shareholders’ agreement may be significant for the company’s investors and increasing the company’s value. The shareholders’ agreement is tool for risk management and control for private equity investors In some situations, it may be reasonable to bind the company to the shareholders’ agreement as a party. In this case, the board of directors of the company shall make a decision on adhering to the shareholders’ agreement. The shareholders’ agreement may be significant for the company’s investors and increasing the company’s value. The shareholders’ agreement is tool for risk management and control for private equity investors [220.127.116.11 Private Investors] and through individual terms of the agreement it is possible to plan and direct the future development of the company.