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Shareholder Agreements

  • Entrihub chats to Ashley Curran, founder of Curran Attorneys. Ashley discusses shareholder agreements.

     

    Question 1: What are shareholder agreements?

    Ashley:  Right, so your shareholder agreements really regulates the rights. Let's take the step back there's three purposes for a shareholders agreement. The first is that it records and regulates the finances and the management of the company. The second thing it does is outlines the rights responsibilities and duties of your shareholders. The third thing it does is regulates the relationship between the shareholders to the company and the relationship between individual shareholders.

    Question 2: Can you use a standard shareholder agreement off the internet?

    Ashley: There's plenty of shareholders' agreements on the internet that are available. They do become problematic if those shareholders' agreements need to be customized to a certain set of circumstances. The ones on the internet generally don't make sufficient provision for if there's a dispute between shareholders. It really is encouraged and advised that independent legal advice is you know that is taken into account when those agreements are drafted.

    Question 3: How much does it cost for a lawyer to draft a shareholder’s agreement?

    Ashley: At the end of the day it entirely depends on the attorney you go to. The profession is based on an hourly rate which is regulated by that attorney's experience and their knowledge of the industry. Generally, the ballpark figure you probably looking at between R46,000 PLUS VAT.

    Question 4: What are the risks of not having a shareholder agreement?

    Ashley:  The biggest risk is what happens if there's a fallout between shareholders. You know my saying is you can't unscramble an egg so prevention is better than cure. You need to make provision for instances specifically if there are only two shareholders in the company that owns 50% of their company. What happens if they can't reach an agreement? That's the most important role or one of the most important aspects of a shareholder's agreement, is that you can be very specific in how that dispute is resolved and more importantly who resolves the dispute. The second important aspect of the shareholder's agreement is to make sure what happens if one of the shareholders dies, what happens if they go insolvent, what happens if one shareholder wants to sell their shares, provision needs to be made to protect the other shareholder. That's done by means of what we call a right of preemption, where the remaining shareholders given the right to purchase the shares from the shareholder that wants to opt-out.