What Can I Do If the Other Shareholder Breaches the Shareholders' Agreement?

Commercial Agreements

Prepared by: Constantinople

A breach of a shareholders' agreement is assessed first in terms of the contractual relationship between its signatories. The agreement may contain voting, share sale, pre-emption or financing obligations. Breach of such a provision does not, however, automatically invalidate every resolution passed by the company. The areas in which the articles of association and the private agreement produce different effects must be identified.

Prepare the complete signed agreement, schedules, amendments and the identities of the parties. Whether the company is a party, the signatory's representation authority and the governing law are important. Notices and deadlines concerning the alleged breach are examined separately. Reliance on a clause appearing in a draft but removed from the final signed version may lead to an incorrect assessment of the parties' actual obligations.

The remedy sought may be performance, payment or damages, a contractual penalty or, where appropriate, interim protection. Mandatory form and approval requirements for share transfers are checked separately. An arbitration or jurisdiction clause may affect where proceedings should be brought. The mere fact that the agreement was signed in a foreign language or specifies a high penalty does not establish that every provision will apply without dispute.

Prepare the complete signed shareholders' agreement and documents showing the transaction in breach. Contractual claims are distinguished from challenges to corporate resolutions.

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