When we consider the legal regulations on managing companies in major economies such as the USA, EU countries, China, and Japan, we see that by and large there are similarities on essential points, although still some differences. For example, the basic rules governing the participation of company directors and shareholders in company management and how the company's decision-making mechanisms work are similar. 

The starting point is that companies are managed in accordance with charter documents such as corporate bylaws or an articles of association. In these documents, the functions of the board of directors, shareholders, and other officers and their relations should be specified in detail.  But these documents are also usually boilerplate.  For a company which actually has multiple independent shareholders, a shareholders agreement is usually necessary as well to govern how the shareholders vote and exercise their shareholder power vis-a-vis each other.   

What is a Shareholder Agreement

Shareholders Agreements are agreements signed by those who are shareholders in a company or those who will be shareholders by transfer, regulating the shareholders' relations with the company and other shareholders. 

A shareholders agreement can determine how the company will be established, how it will be managed, relations with new shareholders, etc.  By specifying the matters reserved for the board of directors in the shareholders' agreement and requiring the shareholders' approval, the required (super) majority level (e.g 66%, 75%, 100%) for the decisions to be taken in the voting can also be determined. Decisions reserved for the board of directors typically relate to the company's day-to-day management. 

Benefits of a Shareholders Agreement

For SMEs where relationships are tight, shareholders may sign a Shareholders' Agreement to prevent an outside shareholder and to set up the company's management according to their own needs.  

Matters reserved for supermajority or unanimous voting might include:

· Structure of shareholding,

· Determination of company director, officials, and company management

· Duties of the company director, officials, and company management

· To whom, how, and under what conditions the company shares can be sold

· Relationship of shareholders with each other and with the company. 

- The issue of company new shares.· 

- Borrowing decisions of the company.· 

- Business activities of the company. 

Suppose a shareholders' agreement does not exist. In that case, the relations between the shareholders and the company are determined by the existing articles of association and the provisions of the company law. 

Generally, in small companies, shareholders may choose to buy the shares of the departing shareholder themselves to avoid an outside shareholder. 

Minority Shareholders Expectations

Although the shareholders' agreement is formed based on different expectations of different shareholders, It has functions such as ensuring dominance over the company, exercising minority rights more effectively, providing a balance between shareholders, protecting the shareholding structure, and providing flexibility and confidentiality. 

Engage a legal advisor to help you efficiently review your business contracts with distributor, suppliers, and other partners to make sure you are legally protected. 

Contact us at inquiries@ChinaLawSolutions.com for more information.