When parties come together to carry out business, shareholders’ agreement is important, even more so for the minority shareholders.

Where a shareholder can influence matters relating to the company more than the other shareholder, one way for the minority shareholder to protect his interest is for the shareholders’ agreement to provide for a list of matters which the company may carry out only with unanimous shareholders’ approval i.e. the shareholders’ reserved matters.

This ensures the minority shareholder’s voice is heard when it comes to matters which may adversely affect the minority shareholder.

The shareholders’ reserved matters may include:

– amendment to the constitution

– issuance of shares

– guarantees, borrowings or loans above an agreed limit

– expenses above an agreed limit

– acquisition or disposal of assets above an agreed limit

– commencement or settlement of litigation

– granting of power of attorney

– declaration of dividend

– winding up of the company

By having a shareholders’ agreement, parties can set out their rights and obligations clearly, which is beneficial even for the minority shareholders.

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This post was first posted on Linkedin on 20 February 2021.