Shareholders' agreement: professional investors

This shareholder agreement has been drawn to include the provisions that a large professional or institutional investor such as a business angel, venture capital or private equity investor would require to protect their investment. It also considers the provisions of minority shareholders, who by virtue of the circumstances are likely to be the founders and friends and family of the founders. Additional features to other Net Lawman shareholder agreements include: drag along and tag along rights, key man insurance, rights of preference, rights of first offer, and increased reporting requirements.
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About this shareholders’ agreement

A shareholders agreement is an essential document regardless of the size or stage of your company.

This agreement has been drawn for a company that has an "institutional" or professional investor. It includes provisions that a business angel or venture capitalist is likely to require and also provisions that might benefit a minority shareholder such as a company founder still working in the business.

The institutional investor is assumed to be a corporate body (the investment is made through a company vehicle) that is given the right to appoint one or more directors to the board. The class of shares owned, debt injected as a condition of the deal and options granted do not affect the suitability of using this agreement.

There are specific provisions in this agreement that are not included in other Net Lawman shareholder agreements. Examples are the inclusion of preference rights for the institutional investor at IPO (if such an exit route is followed), increased reporting and information rights, drag along and tag along rights, and provisions to protect shareholders from dilution of their investment at subsequent financing rounds.

Provisions that we would consider standard in any shareholders agreement, such as those setting out responsibilities of the directors and the company to shareholders are of course included.

The law in this shareholders’ agreement

The law in this shareholders’ agreement is based on both company law and commercial contract law. Within the structure of company law, you can choose the terms that best suit your situation, so you do not need to study any particular law to be able to edit your document.

This agreement is written in plain English by an attorney who specialises in commercial drafting and who has practical experience of resolving shareholder disputes. As a former director of numerous private and publicly listed companies, he includes practical, “real world” considerations. The agreement is up-to-date and comprehensive. This agreement is written according to the Companies Act 2008.

When to use this shareholders’ agreement

A shareholders agreement should be put in place as soon as possible after the share ownership structure changes. Ideally, where a large investment is being made, this agreement would be drawn alongside the other legal documents that deal with the investment so that it is in place as soon as the transaction completes.

However, it could also be used to replace an existing agreement at any time.

This agreement is:

  • Suitable for private companies in any industry in South Africa
  • Suitable for all stages of the business/investment lifecycle, whether the investor is providing seed capital, venture capital, expansion capital or a MBO
  • the company could be a start-up or established

Shareholders’ agreement features and contents

No other shareholders’ agreements for sale on the Internet are in plain English or are as comprehensive in their cover of legal issues and the drafting explanations and tips supplied. Net Lawman’s slogan “Real law, in plain English” is as true of this document as of any others.

In many areas, we give you complete alternative paragraphs and explain in the notes when each will be the most suitable for you. The paragraphs in this document include:

  • Appointment of directors
  • Responsibility of directors
  • Proxy voting of shareholders at meetings
  • Company's obligations to the shareholders
  • Additional disclosure and access to information for the institutional investor(s)
  • Assets introduced by shareholders
  • Actions requiring shareholder consent
  • Deadlock
  • Transfers conditionally permitted
  • Assets and intellectual property introduced by the investor
  • Tag along right
  • Drag along right
  • Transfers on death or incapacity
  • Limitation of actions by former shareholder
  • Continuing obligations of shareholders
  • Publicity
  • Conflict with the Memorandum of Incorporation
  • Confidentiality
  • All other legal provisions

This document was written by an attorney for Net Lawman. It complies with current South African law.

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