The importance of a good shareholders’ agreement in transactions

by Les Nemethy for Warsaw Business Journal, May 31st, 2011.

The purchase of 100% of a company seems to be an increasingly rare type of M&A transaction in Central Europe. “Earn-outs” seem to be increasingly popular, as are various types of strategic alliances and joint ventures. In these types of situations, it is vital that co-shareholders find a mutually beneficial way to share the corporate governance of an enterprise. (In fact, even where there is no transaction, it is usually advisable that co-shareholders have a shareholders’ agreement).

This article deals with the types of provisions that may be contained in a shareholders’ agreement. The list is not at all exhaustive. Generally each jurisdiction has a corporate law, which sets out certain standard procedures and ways in which decisions are made (e.g. minority protection rights, etc.) in the absence of a shareholders’ agreement.

In the same way as a prenuptial agreement, a shareholders’ agreement is necessary if the parties want to deviate from the way that the law would normally operate. Sometimes it is possible to set out the entire understanding of the shareholders in the articles of association of the company. In certain instances, however, a shareholders’ agreement may work better than reliance on articles of association. (continue reading… )


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