Shareholder agreements

Owning a limited company together with others is not always easy. Limited liability companies operate under a formal framework and are often run on a day-to-day basis without the direct influence of shareholders through management and the board of directors.

In Norway, we have several hundred thousand limited companies, and the variation is great - from small family-run companies to large corporations with a large and dispersed shareholder base. The Norwegian Companies Act sets the framework for the companies' activities, but the law largely allows for deviations from the law's normal arrangements, either through the company's official articles of association or through separate agreements between shareholders, shareholder agreements.

In most small and medium-sized limited companies, in my opinion, it makes a lot of sense to enter into a shareholders' agreement.

A shareholders' agreement is an agreement between shareholders that deviates from or supplements the rules of the Companies Act and regulates, in whole or in part, how the shareholders believe the limited liability company should be run. There are no formal requirements for such agreements, but it is my advice that you take such agreements seriously and spend the necessary time to establish what the shareholders think is important for the operation of the limited liability company and the shareholders' influence over this.

In a shareholders' agreement, shareholders can agree on almost anything related to the company's ongoing operations. It is probably a great advantage that all shareholders are part of a shareholders' agreement, but this is of course not a requirement. There may well be a group of shareholders who can agree among themselves on operational matters in the limited company.

The decisive factor in such agreements is that the parties to the agreement can jointly exert sufficient influence in the company's general meeting to have their shareholder agreement implemented in the company's ongoing operations.

In a shareholder agreement, it is common and probably sensible to include provisions on:

• Composition of the board
• The company's capital situation and what will happen if a capital injection is required
• Distribution of profit to shareholders, dividend regulation
• Sale/purchase of the company's shares, including
  • Restrictions on ability to sell
  • Price restrictions
  • Whether shareholder groups of a certain size or large shareholders should be able to force other shareholders to sell their shares in the company at the price agreed with a third party, «drag-along»
  • Whether the sale of shares can trigger the possibility for others to tag-along on a sale of shares to a third party«
• Shareholders' roles in the company and link to share ownership, e.g. employee shareholders
• Default situations, including
  • Mandatory redemption of individual shareholders' ownership at a pre-agreed price/price mechanism
  • Price consequences of default
  • Conventional fine
  • Dispute resolution mechanism
• Competitive issues, can the shareholders be involved in competing activities to the company they are shareholders in?

Shareholder agreements must be adapted to the individual company through «tailoring» in each case. No company or group of shareholders is the same. It is therefore not possible to provide an exhaustive description of the matters that should and can be regulated in a shareholder agreement.

The starting point is that the company itself is not a party to the shareholder agreement, in which case a shareholder agreement will have no legal effect on the company, unless part or all of the shareholder agreement is made part of the company's articles of association.

In some cases, it may make sense for the company to also be a party to the shareholder agreement, but in my opinion this should be done with caution as the company's interest and the shareholder's interest do not always coincide.

Feel free to get in touch for a brief, non-binding chat about shareholder agreements.