About Shareholders' Deeds

The Shareholders' Deed should be used if you are purchasing, operating or investing money into a business with two or more parties using a proprietary limited company.

It is important because it deals with many issues relating to the operation and conduct of a company and the rights of shareholders, which may not be dealt with in the company's constitution or articles of association.  

WHY YOU NEED A SHAREHOLDERS' DEED

You need a Shareholders' Deed if you operate a business to:

• protect your initial investment in a proprietary limited company with other shareholders;
• determine how the company will be run and how decisions will be made;
• define the rights and obligations of shareholders;
  determine what issues will require a special majority vote at board meetings;
• determine how many directors each shareholder can appoint, who will be chairman and how often the directors will meet;
• set out the responsibilities of the CEO; 
• set out the voting rights of shareholders and directors;
  determine the type of decisions that require a vote of the shareholders - e.g. purchase of major assets, loans over a certain amount, buying and selling shares;
• set out what happens on a "deadlock" (even votes for and against a decision) and how it should be resolved;
• set out the capital contributions and what assets (if any) are provided by each shareholder;
• determine the type of business that will be undertaken and the future direction of the business;
• set out what happens when a party wants to "exit" the agreement, or dies;
• set out what events will "trigger" the termination of the agreement; and
• value the shares in the event of a buy-out or sale to another party if a shareholder leaves.

The template Shareholders' Deed is designed to deal with simple shareholding arrangements and does not cover all issues noted above, some of which need to be drafted to cater for specific circumstances.