Shareholders Agreement Versus Articles

Dilution protection clauses exist to protect outside investors and are often to the detriment of founders, previously unprotected outside investors or other shareholders. They are not ideal for non-beneficiaries of anti-dilution provisions, but the reality is that most serious and experienced investors will expect protection against dilution. While a SHA and a statute should not contradict each other, a SHA may contain a priority clause to ensure that the SHA suspends the articles (in the event of inconsistency, shareholders may amend the articles accordingly). As the articles follow a legal model, they are not able to deal with matters that are personal to shareholders, as this would relate to the legal powers of the company. Shareholder loans can also have long maturities with low or deferred interest payments. Shareholder loans can also be converted into [a class] of shares. This method of financing is typical of young companies that are not able to take on debts with banks. When several parties join forces and create a company that employs them, it is often based on the understanding that the parties actually gain their participation through their efforts as workers in the development of the company`s activities. It is very common for a number of people to come together to start a business with equal stakes and spend time developing a promising business, and at some point differences appear, which makes one of the promoters cease to be employed in the company.

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