I posted the following on my Facebook on 5 March. Thought I would reproduce it here. One of my new year resolutions is to blog a bit more. Given my abysmal record in 2015 (very busy la), this post would also do the trick ! Here it goes.
Here’s another one of my long-winded posts put up with the hope that it contains something you didn’t know (forgive me if you already know all that; comments welcomed of course but be nice). This time, I deal with shareholders.
Many of us enter into business relationships with “partners” and they become shareholders of our companies. Here are a few things which you may or may not know about shareholders:
a. unlike directors, shareholdes are entitled to be selfish and to look only after their own interests. Unless you have a well drafted shareholders’ agreement, there is nothing to stop your shareholder from conducting himself in a way which will prejudice your business (e.g. compete with you on the side)
b. all shareholders have to observe the Articles of Association (do you even know what that is;)). But most of us just blindly adopt the “standard” one put in place by your company secretary without considering if the terms there meet your needs and reflect the business relationship you want
c. it is very hard to get rid of a shareholder (unless you have a well drafted shareholders agreement). Unlike an employee or even a director, you cannot just terminate or remove the guy. So be very slow to give your crown jewels away (company equity). Get to know the guys first and come up with a form of shareholders agreement.
d. you can define or limit each shareholders’ rights and powers if you wish (bet you didn’t know that!) . Hence, there are different classes of shares. Again, you have to put in place the paperwork before that can happen.
e. not all shareholders are members of the company although all members are shareholders. Only members have rights in a company.