Reserved matters in Shareholders’ Agreements
Reserved matters are key decision-making powers that are reserved in a shareholders’ agreement for the shareholders of a company. They ensure that certain matters or actions cannot be undertaken by the company or its subsidiaries without the approval or special majority of the shareholders.
Reserved matters are a mechanism for protecting the interests of shareholders and ensuring that the company is managed in a way which aligns with their expectations. They also safeguard the rights of minority shareholders against those of majority shareholders (who are most likely to outvote everyone else at meetings of the company).
When determining the list of matters which will compromise the reserved matters of the company, some important considerations are:
ensuring that the regular business or day-to-day operations of the company or its subsidiaries is not unreasonably delayed; and
that the concerns of minority shareholders should be addressed only to the extent that any veto afforded is not used for collateral purposes.
What are the common reserved matters?
Whilst there is no exhaustive list of reserved matters which can be included in a shareholders’ agreement, some of the more commonly used reserved matters are as follows:
Board composition and governance, including the appointment and removal of directors
This can include the can include the size of the board, the role of the board in managing the company and the appointment and removal of directors. Reserving the right of shareholders to appoint and remove directors, for example, gives shareholders significant control over the management of the company. It also helps to ensure that directors are acting in the best interests of the shareholders in accordance with their duties at law and that the company is aligned with the goals of its shareholders.
Management of major corporate actions
Major corporate actions might include matters such as mergers, acquisitions and divestitures. Affording shareholders the right to approve or reject these actions helps to protect their investment and gives them a hand in determining the future direction of the company.
Paying dividends or making distributions
The dividend policy of the company is a key reserved matter often included in shareholders agreements. It ensures that the company distributes its profits in a way that is fair and equitable to all shareholders.
Capital structure of the company
Reserved matters relating to the capital structure of the company can include the issuance of new shares, the conversion of existing shares and the sale of existing shares. Reserving these decisions for shareholders helps to align the capital structure of the company with their interests.
Management of company assets
Management of company assets includes the acquisition, disposition and use of assets, as well as the management of the company’s investments. Reserving this matter is important because shareholders have a vested interest in safeguarding the company against any loss which might result from the misuse of company assets.
How can we help you?
A reserved matters list in a shareholders’ agreement should be settled with due consideration and should take into account the circumstances of the company. A poorly drafted list may impede the day-to-day operations of the company or unacceptably disadvantage minority shareholders.
Merton Lawyers are experts in corporate governance and preparing bespoke shareholders agreements. To discuss how we can assist you, please contact our corporate team to arrange for an initial consultation.
