Shareholders’ Agreements are private contracts between the members of a company which outline and regulate the rights and obligations of each shareholder. Shareholder Agreements are a useful tool to prevent conflicts arising in the management or decision taking of a company or alternatively, be used to reach a solution if a conflict does arise. 

The Articles of Association, which outline the internal operation regulations of a company, is a public document and can be accessed by the public through the Registrar of Companies in Cyprus. 

It should be noted that the terms of Shareholders’ Agreements need to be, as far as possible, in line with the provisions of the company’s Articles of Association. This is to avoid cases where different rights and procedures are provided for in the Articles of Association of the Company to those privately agreed between the Shareholders. 

Shareholders’ Agreements may be employed to set out the terms governing the issue and transfer of shares or the appointment of Directors. A Shareholders’ Agreement may provide for restrictions on who can become a Shareholder, which can be crucial in a business. 

In other cases, such agreements may determine matters related to the structure or management of the Company, including inter alia, the responsibility of Shareholders to contribute funds to the company in accordance to their respective interest, how the company accesses or utilises these funds and provisions for cases when a Shareholder is not able to contribute or finance the Company. 

Most minority Shareholders can often find themselves oppressed by not being able to affect a Company’s decision-making process. Shareholders’ Agreements can be used to set in place safeguards to prevent this and to accommodate the rights of Investors.

Shareholders’ Agreements can also provide various exit strategies or even provide for a mechanism or formula to determine a fair price to be paid to an exiting Shareholder for his/her shares.

Shareholders’ Agreements can be used to determine the rights and obligations of Shareholders, how the shares are sold, how the company will be operated and how decisions will be made. 

As such, Shareholders’ Agreements can be a very valuable tool to prevent or minimise disputes between Shareholders in the future and safeguard the business operations of the Company.

Should you wish to find out more, contact us at info@paraschou.com.cy.