Shareholders Agreements Andria Papageorgiou Law Firm
Introduction:
•
Shareholders’ rights and obligations;
Under the Cyprus Companies Law, Cap 113 (hereinafter the ‘’Law’’), all private limited Companies are required to adopt articles of association (hereinafter the ‘’AoA’’) and a memorandum of association upon their incorporation. The AoA specify the regulations for a Company’s operations and management, and they set out the administrative and Company law procedures for carrying out the business affairs of the Company. It goes without saying that they are being drafted in accordance with the Law so that the provisions of Law are reflected in the regulations of a Company. The AoA are public documents, and the public can review them through the Registrar of Companies and Official Receiver of Cyprus.
•
Regulate the issuance, transfer and sale of shares of the Company;
•
Regulate the appointment and resignation/ removal of Directors;
•
Restrictions on the activities of the Company, including provisions, requiring consent of all Shareholders, or approval by specific majority to enter new areas of business or territories;
•
Set out provisions to resolve deadlock situations;
•
Non-Competition issue, including provsions preventing shareholders from setting up competing business, to the Company, within a prescribed time period, or territory;
•
Regulate the amount and way of declaring dividends;
•
Confidentiality issue, including provisions relating to the exposure to publicity of the Company’s documents (Under Cyprus Law there is no obligation for the registration or deposit of the SHA with the Registrar of Companies); and
When should the Shareholders enter a SHA:
•
Set out provisions for dispute resolution procedures.
From our experience, we would recommend for a SHA to be signed at the stage when you form the Company and issue the first shares. In fact, it is a good practice to ensure there is a common understanding of Shareholders’ expectations of the business.
What if there is a breach of the SHA:
A Shareholders’ Agreement (hereinafter the ‘’SHA’’) is a private contract between the members of a Company. A SHA regulates the relationship between the Shareholders as well as setting the grounds in the event of a deadlock. Whilst Companies are not legally required to have a SHA (the Law does not make any references to SHA), it is important for the Shareholders to enter a SHA upon the incorporation of the Company in order to be aware of their rights and obligations towards each other. It is not necessary that the Company is a Party to a SHA.
What a SHA usually covers: At Andria Papageorgiou Law Firm, we offer tailor-made solutions for SHAs drafted specifically to avoid future conflicts between the members of a Company, covering, among others, the below issues: •
The Company structure, including the composition of the share capital of the Company;
GAME CHANGERS Issue #37
In the event of a violation of the SHA by any contracting Party, then the other Party can enforce same by an action for specific performance, and for damages, as well as to apply for an injunction to block the violation of same. It should also be noted however that any term of the SHA which contravenes any statutory provision of the Law is considered invalid under Cyprus Law. In addition to this point a SHA and the AoA of a Company should be consistent with one another.
