Having a current shareholder agreement allows founders, investors and shareholders to address their concerns, agree on key aspects of company governance, and avoid disputes. As shareholders change their relationship with the company through exits or share transfers, or as the company brings in new investors, a shareholder agreement may need a legal review to reflect the current arrangement. Below, we discuss when to have a shareholder agreement review in Singapore, what it covers, and how it can benefit both shareholders and the company.
Key Takeaways
- Shareholder agreement review can help founders, co-owners, shareholders and investors address gaps in existing agreements before they develop into disputes.
- Common areas of concern addressed by shareholder agreement review include responsibilities of shareholders, capital contributions, transfer and exit restrictions, and dispute and deadlock resolution mechanisms.
- A shareholder agreement review lawyer can create a risk summary and provide markup and comments on suggested changes.
When You Might Need a Shareholder Agreement Review
When an organisation plans major changes, such as shareholder exits or transfers, or needs to expedite the key decision-making, the shareholders can implement new governance mechanisms through the shareholder agreement. It’s also advisable to take pre-emptive action and review the shareholder agreement to regulate potential disputes and red flags before they arise.
Most often, the company or individual shareholders may be interested in initiating a shareholder agreement review to:
- introduce new arrangements between shareholders,
- address emerging concerns,
- protect minority shareholders,
- supplement company constitution,
- prepare for new investors’ entry,
- conduct periodic maintenance of the essential legal documents.
Who Needs a Shareholder Agreement Review
A shareholder agreement review helps revisit the existing arrangements among shareholders and align them with the current requirements. Specifically, a shareholder agreement review can benefit:
- founders seeking to retain control as the company grows or adds new stakeholders,
- minority shareholders who need a stronger voice in key decisions,
- co-owners facing the risk of gridlock in equal-share co-ownership,
- investors interested in additional assurance on funding terms and exit protections.
What a Shareholder Agreement Review Covers
The scope of a shareholder agreement review may vary depending on the goals and concerns faced by the stakeholders.
Typically, a shareholder agreement lawyer in Singapore would check the following aspects:
- The Structure of the Board: How directors are appointed and removed, and what the scope of their authority is.
- Roles and Responsibilities: Whether the agreement clearly defines shareholders’ obligations, particularly for those acting as directors or in similar roles.
- Capital Contributions: What is the process for increased shareholder capital contributions, including protocols, conditions, and penalties.
- Share Transfer and Exit Restrictions: What are the procedures for transfers, buyouts, and exits, including the valuation methods.
- Disputes and Deadlock Resolution Mechanisms: Whether there is a framework and process in place for dispute resolution, including deadlock situations where there are two owners who own 50% of the shares.
- Non-Compete and Confidentiality Obligations: Whether the agreement restricts shareholders from competing and ensures the confidentiality of sensitive information.
- Minority Protection Mechanisms: How the agreement ensures the rights of the minority shareholders and whether they have a say in the running of the business.
- Duration and Termination Clauses: What is the term of the agreement and the clauses surviving termination.
- Amendment Procedures: How and when the shareholder agreement can be amended.
What to Expect from a Shareholder Agreement Review in Singapore
When you turn to shareholder agreement review lawyers in Singapore, you will need to provide your existing shareholder agreement, including any attachments. The lawyer may also interview you to get a better understanding of your current perspective and concerns.
The lawyer would then review the essential terms of the shareholder agreement, provide comments, and highlight any areas of concern. Additionally, the lawyer would provide a separate summary of suggested changes. Depending on the complexity of the agreement and the law firm’s schedule, the process of the review can take from several business days up to several weeks.
Conclusion
Reviewing a shareholder agreement can enable co-owners, startup founders, minority shareholders, and investors to address potential issues before they develop into disputes. A shareholder agreement review by lawyers can help highlight risks, identify gaps in governance, and provide clear guidance for recommended amendments. For more information on shareholder agreement review in Singapore or for tailored legal advice, please contact the IRB Law corporate lawyers team.
FAQs
How often should I have a shareholder agreement legal review?
It is generally recommended to have a shareholder agreement review whenever major changes occur in your company, for example, when adding new shareholders or when there are pending legal changes. In the absence of such changes, it’s advisable to review your shareholder agreement every 2-5 years to ensure it is aligned with current legislation.
What is the typical shareholder agreement review cost in Singapore?
The legal fees for shareholder agreement review in Singapore by lawyers depend on the complexity of your company’s organisational structure, the number of shareholders, and the scope of the shareholder agreements. For more information, please contact the IRB Law corporate lawyers for a free initial consultation on our shareholder agreement review services and applicable fees.
Can a shareholder agreement for start-ups in Singapore override the company’s constitution?
In general, the company constitution takes precedence over other agreements, including the shareholder agreement. While the shareholders may agree that the shareholder agreement should prevail over the company’s constitution in relation to inter-shareholder relationships, such a clause should be carefully crafted to be consistent with Singapore’s Companies Act.
How do I implement changes to my shareholder agreement after review?
You need to obtain the consent of all shareholders to the proposed amendments and engage lawyers to create a draft shareholder agreement to incorporate approved updates based on the review. After the shareholders approve the draft, they need to sign the updated agreement for the changes to take effect.
