Shareholders can fall out and disagree on the direction of the company. If a deadlock oocurs (ie no shareholder(s) can outvote the others) this can often paralyse the operation of the company. Having an effective dispute resolution procedure is essential to avoid the company stagnating and/or being wound up.

Depending on the nature of the dispute, the shareholders’ agreement can provide for a variety of different options from expert determination and mediation through put and call options to allow one group of shareholders to buy the other out at a fair price.

Shareholders often form a joint venture because they know and trust the other shareholders. They wouldn’t want the shares to be transferred to just anybody and have to deal with a party they may not know or get on with. On the other hand, this needs to be balanced with a shareholder’s desire to transfer their shares and realise value for their investment.

The shareholders’ agreement will therefore generally provide for a series of mechanisms setting out when and how a shareholder can transfer their shares.

For many shareholders, the ultimate aim is to sell the company to a third party. In order to facilitate this, a shareholders’ agreement generally includes ‘drag’ and ‘tag’ provisions.

Drag provisions will allow a group of shareholders (generally exceeding a certain percentage) to force the remaining shareholders to sell their shares on the same terms and at the same time as the main group. These provisions often benefit the majority shareholder(s).

Tag provisions allow shareholders in certain circumstance to force a buyer to buy their shares on the same terms as they are buying other shares. These provisions generally benefit the minority shareholders, allowing them to avoid being ‘left behind’ when the other shareholders sell their shares.