Transaction Glossary: SHA
The term Shareholders' Agreement, often abbreviated as SHA, has similarly entered our legal vocabulary from Anglo-Saxon law, like many other legal terms. In the Czech context, we may encounter translations such as "shareholder agreement" or "partners' agreement," but the original English term remains widely used. What does this term actually encompass?
It is a contractual arrangement among partners that governs their mutual relationships beyond what is stipulated by law or the company's articles of association (which serve merely as a legal minimum and are publicly accessible). It is important to note that the parties to the SHA do not necessarily have to include all partners of the company; it can involve only a selected group. Often, the company itself is also a party to the agreement to ensure cooperation among all parties. Flexibility is one of the main advantages of the SHA—one company can even have multiple different SHAs simultaneously, but it is crucial to ensure that they do not contradict each other.
In terms of content, the SHA typically focuses on several key areas, which we outline below.
Matters Related to Company Management and Governance
The first area addresses arrangements regarding the management and governance of the company, primarily the right of certain partners to appoint members of the statutory or supervisory body. Some partners may also gain the right to appoint observers or a supervisory body that participates in the meetings of the statutory body without voting rights.
Pre-emptive Rights
The second important aspect is pre-emptive rights, which grant existing partners the preferential right to subscribe for new shares or purchase existing shares or interests before they are offered to third parties. These rights may take the form of a right of first offer or a right of first refusal.
Drag-along and Tag-along Rights
The SHA often includes mechanisms for joint sales of shares or interests. This primarily involves tag-along rights, which allow minority partners to join in the sale of shares or interests by majority partners under the same conditions, and drag-along rights, which enable majority partners to compel minority partners to sell their shares or interests together with the majority. Their aim is to prevent fragmentation of the ownership structure among partners, thereby preserving the company's value.
Protection of Minority Partners, Right of Veto
Equally important are provisions regarding the right of veto, which grant certain partners the ability to block specific decisions of the company, and so-called lock-up provisions, which may temporarily restrict the transfer of shares or interests of certain partners. The SHA often also includes non-compete clauses prohibiting partners from engaging in competitive activities or soliciting employees, suppliers, or customers of the company.
Dispute Resolution
Lastly, it is important to mention the mechanisms for dispute resolution, which should be clearly defined in the SHA. These may include mediation, arbitration, or other procedures to prevent potential paralysis of decision-making processes within the company. A well-prepared SHA thus serves as an effective means of preventing future disputes among partners and provides a clear framework for resolving potential conflicts.
The scope and content of the SHA can vary significantly depending on the type and size of the company, the number of partners, and their mutual relationships. For example, in a start-up with several founders and one investor, the SHA will emphasize different aspects than in an established company with many partners. Therefore, when preparing this document, it is crucial to carefully consider which provisions are relevant to the specific situation.