A Shareholders Agreement also sometimes called a Security Holders Agreement (SHA) is a written agreement between the shareholders of a company and sets out in a transparent manner the obligations, rights and responsibilities shareholders and directors have to a company and to each other to ensure its efficient and effective management.
An important aspect of any SHA are Drag along and Tag along clauses.
I am often asked to explain what they are, their implications and who do they benefit.
In simple terms a drag along protects the interests of the major shareholder(s) and a tag along clause protects smaller shareholders.
They are usually very important to investors in a company.
Drag along clauses
A drag along clause will require the minor shareholder(s) to sell their shares if the majority shareholder(s) receive an offer to purchase their shares.
This type of clause in a SHA is there solely to protect the majority shareholder(s) who generally hold more than 51% of the shares in the company.
It is very common in start-ups and amongst entrepreneurs where the majority shareholder(s) do not want to be held back by investors if an offer to purchase the company is made.
I often see investors seeking to amend the clause in a SHA for their protection before investing in a company.
Tag along clauses
A Tag along clause enables the minority shareholder to sell their shares in the company by joining a majority shareholder when they are selling their shares.
It places a positive onus on the majority shareholder to ensure any minority shareholders are included in any negotiations to sell their shares.
The benefit of this type of clause is that if a majority shareholder(s) decides to sell the minority shareholder may not be left holding unsalable or devalued shares.
How can FC Lawyers help?
FC Lawyers have a very experienced and expert team of corporate lawyers who have significant experience in drafting Shareholders and Security Holders Agreements.
Contact our team today to discuss your needs.
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