Important provisions which may be included in the shareholders’ agreement (as well as the articles of association of the company) are those regarding transfers of shares by shareholders. They may typically provide that where a shareholder wishes to sell its shares to a third party, this triggers pre-emption rights. These pre-emption rights enable the other shareholders to acquire those shares at the same price and on the same terms. However, there may be a carve-out for intra-group transfers (ie transfers to other members of the transferor’s group) provided that the transferee enters into the shareholders’ agreement with the remaining parties on the same terms as apply to the transferor.
One example of the circumstances surrounding a transfer of shares is that of Coventry City football club. According to the 2011 annual returns submitted by Sky Blue Sports & Leisure, the majority of its shares were transferred to Sconset Capital LP. The transfer of shares to Sconset, registered in the Cayman Islands, took place in 2010. Despite a wholesale transfer of shares the club will still be controlled by Sisu Capital Limited, which owns 100% of the shares in Sconset.
Provisions may also be included regarding compulsory transfers. These will specify that should some particular event happen, for example the change of control or insolvency of a shareholder or a material breach of the shareholders’ agreement by a shareholder, the remaining shareholders will be allowed to acquire the defaulting shareholder’s shares in proportion to the shares they already hold.
Drag-along rights may also be contained in the shareholders’ agreement. These enable a majority of shareholders to accept an offer from a third party to buy their shares and to require the holders of the remaining shares to accept such an offer (thereby allowing the offeror to acquire all of the shares in the company).
Tag-along rights (also called piggyback rights) act as a protection for minority shareholders in that they can require majority shareholders to include the minority’s shareholding in any sale it makes to a third party on the same terms.