Shareholders’ agreement: corporate structure of the company
Today we will discuss the corporate structure of the company in general and the regulation of provisions on management bodies in the shareholders’ agreement (and articles of association) and their competence.
In practice, either a two-tier (director - meeting of participants) or three-tier (director - board of directors - meeting of participants) management system is more common.
| The shareholders' meeting is the supreme governing body of the company, in which all shareholders participate. |
Responsible for making key decisions regarding the strategic direction of the company. The shareholders' meeting discusses and approves important issues, such as the election and change of board members, distribution of profits and dividends, approval of annual reports and balance sheets, amendments to the company's articles of association, increase or decrease of share capital, reorganization or liquidation of the company.
In practice, at the investor entry stage, the parties start discussing reserved matters, as it is important for the investor to establish reserved matters to maintain control over key decisions affecting the value and safety of the investment, manage the strategic direction of the company, minimize risks from rash management actions, prevent concentration of power in individual participants and ensure transparency and accountability in making important decisions.
We will definitely devote a separate post to what investors ask to be included in the shareholders’ agreement and company charter.
| A board of directors is established in a company when it is necessary to introduce an additional level of control between shareholders and the CEO, to provide strategic guidance, to protect the interests of investors, especially minority participants, or to increase creditor confidence by demonstrating a high level of corporate governance. |
What should be stipulated?
The procedure for nominating the chairperson and whether he/she has a casting vote and the necessary number of votes for decision-making.
In the shareholders’ agreement it is also important to clearly outline the following procedural aspects for the shareholders' and board of directors' meeting: the procedure for convening, form of notice, timing, place and form of holding, competence of meetings, initial and repeat quorum, record keeping and other.
| Director/CEO - an appointed person who solely manages the company and is responsible for its operational management. |
Director makes decisions on day-to-day matters, implements strategic plans approved by the Board of Directors or shareholders' meeting, monitors financial discipline and compliance with corporate procedures, represents the Company in relations with third parties, and ensures compliance with legal and regulatory requirements.
A shareholders’ agreement typically provides for procedures for the appointment and replacement of a director, his or her powers and duties, contract terms (including salary and bonuses), terms of office, and forms and timing of reporting to shareholders and/or the board of directors.
Author: Irina Kuheika
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