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.
The information provided in this article is for general information and educative purposes in summary form on legal topics which is current at the time it is published. The content does not constitute legal advice or recommendations and should not be relied upon as such. Whilst every care has been taken in the preparation of this article, FC Lawyers cannot accept responsibility for any errors, including those caused by negligence, in the material. We make no representations, statements or warranties about the accuracy or completeness of the information and you should not rely on it. You are advised to make your own independent inquiries regarding the accuracy of any information provided on this website. FC Lawyers does not guarantee, and accepts no legal responsibility whatsoever arising from or in connection to the accuracy, reliability, currency, correctness or completeness of any material contained in this article. Links to third party websites or articles does not constitute any endorsement or approval of those sites or the owners of those sites. Nothing in this article should be construed as granting any licence or right for you to use that content. You should consult the third party’s terms and conditions of use in relation to any third-party content. FC Lawyers disclaims all responsibility and all liability (including liability for negligence) for all expenses, losses, damages and costs you might incur as a result of the information being inaccurate or incomplete in any way. Appropriate legal advice should always be obtained in actual situations.
Prefer to get in touch?
With offices in Brisbane, Sunshine Coast, North Queensland and Sydney, our team is well equipped to provide both advice and support across a broad range of legal areas.
