In an M&A transaction where the sale and purchase of shares is not for the entire issued share capital of a company, it is prudent for shareholders to enter into a shareholders’ agreement to govern their relationship.

The shareholders would typically want the right to nominate their representatives to be directors of the company and have such rights set out in a shareholders’ agreement. Such shareholders’ right to board seat is usually proportionate to their shareholding in the company and include the right to replace the director(s) they nominate.

A nominee director should bear this in mind:

Although the director is nominated by a shareholder, the director’s duty is first and foremost towards the company.

A director who was appointed by or as a representative of a member must act in the best interest of the company and in the event of any conflict between his duty to act in the best interest of the company and his duty to his nominator, he shall not subordinate his duty to act in the best interest of the company to his nominator (section 217(1) of the Companies Act 2016).

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This post was first posted on Linkedin on 3 October 2022.