Shareholders’ Agreements: Examining the Increasingly Common Phenomenon

Abstract

Shareholders’ Agreements are essentially agreements executed between the shareholders of a company, which define their rights and obligations. While it is the articles of association which are regarded as the constitution of the company in terms of the Companies Act 2006, and which generally contain the provisions which bind the company and its members, an increasing upsurge has been witnessed in the execution and usage of shareholders’ agreements over time. This noticeable rise has resulted due to two main reasons. Firstly, the limitations and ambiguities which are continually prevailing in the operation of the articles of association have led shareholders to make use of shareholders’ agreements to establish the construct of their rights and obligations. Secondly, the nature of such agreements makes them a favourable option for a diverse range of investors owing to them allowing shareholders to agree on additional rights and obligations and, moreover, due to their confidential private nature. This article expounds upon the striking reasons owing to which shareholders’ agreements have emerged as a common phenomenon and correspondingly, addresses and critically analyses the existent limitations and uncertainties which encompass such agreements. Agreement; Shareholders, investors, company law, articles of association, enforcement of rights