shares at a nominated price. If the
receiving shareholder chooses not to
buy those shares, he/she must sell
his/her shares to the initiating party
at the same nominated price.
shareholders to become the chairman
in the event of a deadlock and have
the casting vote on the dispute.
continues for a set period of time,
all the company's assets will be sold
and the company will be divided up
voluntarily. The shareholders equally
share in the expenses of liquidating
the business. This solution is
generally a last resort when there is
no alternative other than to liquidate.
restrictions on the transfer of shares.
Pre-emptive rights may include:
existing shareholders the first
opportunity to purchase the shares
from another shareholder of the
same company before the shares
can be offered to parties outside
the company.
will have the discretion to refuse
to register a transfer of shares to
prevent unwanted parties from
joining the company.
shareholder wishing to transfer
his/her shares will have to obtain
the consent of the board to transfer
shares or transfer shares to
certain parties.
specify certain fundamental changes
in circumstance which will trigger a
Examples of such events include:
bankruptcy
shareholders' agreement
(where this is required because the
company trades, for example, as a
doctor's surgery or a law practice).
stipulate a method for determining the
value of shares in relation to pre-emptive
rights and mandatory sale events. Typical
share valuation methods include:
shareholders.
assets divided by the current number
of shares.
by an accountant.
who are not directly involved in the
transaction value the shares.
is unique. Similarly, every dispute that
arises between the shareholders of a
given company will be unique. Despite
the difficulty in predicting the range
and nature of disputes that may arise,
prudent investors should always insist on
a shareholders' agreement with at least
the clauses identified in this article. The
initial expense incurred in preparing a
well drafted shareholders' agreement
will pale in comparison to the cost of
any dispute.