The share agreement should not only include basic matters, such as the investor, the duration of the investment, the number of shares held by each shareholder, how to share the dividend, and their respective responsibilities, but also consider the matters listed below, otherwise, disputes between shareholders may arise in the future. And ultimately led to the failure of cooperation.
1. Unexpected exit mechanism
If, as a result of an accident, a shareholder dies or fails to work at all, the shareholder's equity must be dealt with by an appropriate mechanism. Otherwise, it is often the case that other shareholders have no money or do not intend to buy those shares. And the family of the shareholder urgently needs to convert the shares into cash. The recommended method is to emphasize in the share agreement that life insurance is purchased in the name of the company for each shareholder and that the beneficiary is the family of that shareholder, provided that in the event of the above situation, the proceeds of life insurance are used to purchase the shares of that shareholder. The rest of the money goes to the family of the shareholders.
2. The manner in which shares are acquired
Shares can be acquired through cash, skills, or working hours for the company, i.e. loyalty, etc. A good definition of the way these shares are acquired and a good channel for change are the basis for avoiding future equity disputes.
3. Appointment and removal of managers
The share agreement must make it clear how the manager came into being. It is also important to consider how changes in shareholder shares affect the appointment and removal of managers and under what circumstances a manager cannot be removed.
4. Decision procedure
The method of few obeying the majority does not apply in all cases. Depending on the situation, resolutions can be passed at 50 percent, 75 percent at times, and 100 percent for the most important. The bigger the pass rate, the better it is for the company, because it can lead to waste of time and procedures or even a dead end.
5. Dividends and fund-raising
The agreement requires a clear description of the dividend, as well as whether to give a dividend first to shareholders who are about to withdraw. The agreement also requires clarity as to whether the company can seek external funds, as well as the decision-making power of its original shareholders on external funds.
6. Share transfe
A share agreement must clarify how shares are transferred between shareholders, and the various situations in which shares are transferred, especially when a shareholder is to withdraw completely, and the other shareholders' rights and obligations to that withdrawal shareholder.
7. Exit mechanism
The share agreement is to be made clear in which case the shares of the company may all be sold to another company, in which case the small shareholders are allowed to control the company by purchasing the shares of the large shareholders, in which case a shareholder may fully withdraw, and exit the compensation.
8. Dispute resolution
The agreement should specify how to resolve resolutions that cannot be passed, such as requiring a third party to participate in the adjudication and how to select a third party.
A thoughtful share agreement is essential for co-operation among shareholders.