September 25, 2023

The Shareholder Agreement for Companies in Singapore

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A shareholder agreement is a contract that describes how the company will manage and ensure the smooth operation of the business. These agreements cover wide sections such as the business plans, capital structure, policies, and board composition. It stipulates the powers and responsibilities of the various parties which include shareholders, investors, management of the company.

Types of Shareholder Agreements

A shareholder agreement does not always signed by all shareholders. To know about shareholder’s agreement you need to understand the importance of a shareholder’s agreement here.

The agreement can be signed by the following parties:

  • Among the shareholders
  • Between the shareholders of the company.

A shareholder agreement is for certain shareholders that enter into private arrangements. This is signed between them. The agreements are the ones where a shareholder gets the right to purchase shares of another shareholder. In this, the shareholders who get involved in such arrangements are required to sign the agreement.

If the agreement is between the shareholders and the company, the company and shareholders will be able to enforce the terms of the agreement on one another. This has the disadvantage of including the company as the company’s consent may be required in the event that the shareholder wants to amend the agreement. The consent of a larger number of parties is required in the company to the agreement. The consent of other members of the board is required for the agreement.

Why Do You Need a Shareholder Agreement?

This agreement is also called the supplement to the company constitution. It is useful when:

  • The shareholders want to include unique or specific things in their agreement.
  • The company uses the Model Constitution by ACRA

This provides broad provisions and the agreement has more prescriptive provisions. This also addresses the specific requirements of the business as well as the other concerns related to shareholders.

Unlike the constitution of the company, it can be changed by the voting process. It can be altered only if the consent of parties. This somewhere gives the advantages to the shareholders that may block changes to a shareholder agreement if it affects their rights.

Benefits of Shareholder Agreements

  • It is not open for public inspection which makes it separate from other company constitutions.
  • It can give the rules to govern some matters that are not covered by the company norms.
  • The agreement can also attract investors to grant greater investor protection. They will also provide specific investor rights.
  • This agreement can be used to increase competitiveness. It can preserve the mover advantage and non-competitive obligations.
  • An agreement protects minority rights. This agreement can include a provision that will guard against the dilution of their shareholdings.

Shareholder agreements are the most important internal documents for ACRA by following legal compliance for all Singapore Companies.  If you have a shareholder agreement that you need to keep a copy of this agreement with other official company records and documents. Besides this, the shareholder agreements are restricted to be out and are highly confidential.