Why should you have a shareholders’ agreement?https://jhwbizlaw.com/wp-content/themes/movedo/images/empty/thumbnail.jpg150150Jiang Hong Wilkin Business LawJiang Hong Wilkin Business Law//jhwbizlaw.com/wp-content/uploads/2020/07/jhw-logo.png
Unless a company has only one shareholder, there should be shareholders’ agreement. Especially for minority holders, their interest cannot be protected without a shareholders’ agreement. Majority holders control the board of directors, and minority holders cannot join the board without a shareholders’ agreement.
Majority holders can do whatever they want, and minority holders have no opportunity to intervene. For example, a minority holder bought 10 shares at $1000 per share (in total $10,000). Thereafter, the board of directors may issue to the majority holders 1000 shares at $ 1 per share (in total $ 1,000). The board of directors may appoint the son of the majority holder as the CEO with annual salary of $500,000. The minority holder has no way to intervene, rather than going to court. Moreover, there is no way to exit the company. The minority holder cannot sell his shares without the consent of the majority holders. If shares held by the minority holder is less 33.34%, the majority holders can sell company’s assets, merge with other company, or dissolve the company without the consent of the minority holder. Therefore, there should be a shareholders’ agreement when becoming a minority holder of a company. It is better to sign the shareholders’ agreement while making the investment. If you already became a shareholder, it is still recommended to enter into a shareholders’ agreement as early as possible. Otherwise, it will be to too late once the relationship between shareholders breaks down.