Minority shareholders could find themselves in the precarious position of being evicted from a company against their will. This can occur in the event of a dispute between a minority and a majority shareholder, and in a recent case it was decided that a majority shareholder`s decision to amend the statutes to create a mechanism for ousting a minority shareholder was valid. Here`s what happened, and some information about what you can do if you`re in a similar position. Under Act Corporations4, a incorporation acts as a contract between each shareholder and any other shareholder, as well as with the company. Therefore, if a person agrees to become a shareholder in the company and his or her name is on the shareholder register, This person will be automatically bound by the company`s statutes and any future changes made to him (subject to certain exceptions).5 The Staray case proposes that if a real purpose can be identified for modifications to a company`s articles, which could reasonably be for the benefit of the company, it may be possible to introduce mandatory acquisition powers, such as. B long drag rights or forced withdrawal, which could affect the interests of minority shareholders, without the agreement of those shareholders. The South Australian Supreme Court in Elders Forestry Ltd v BOSI Security Services Ltd6 (Elders v BOSI) saw the impact of a shareholder agreement on the Constitution somewhat differently. In this case, the Court held that an amendment to the shareholder contract, although in practical terms, could effectively alter the rights and obligations of the company and its shareholders who are contracting parties to the shareholder contract, the amendment does not alter the Constitution itself. The Tribunal also clarified that, for a shareholder who is not a party to the shareholder contract, the provisions of the shareholder contract cannot be prevailed above the Constitution, since the shareholder contract does not have a request for that shareholder.
It seems to be the best view. Most companies have a Constitution1 that defines the rules governing their activities as well as the rights and obligations of their shareholders and directors. It is not uncommon for shareholders of a joint venture or closely managed company to also decide to sign a shareholders` pact to regulate their relationships. But when shareholders consider adopting a shareholders` pact, they must carefully consider their potential impact on the Constitution and shareholder rights in light of other documents. The Elders/BOSI case also shows that, in certain circumstances, a shareholders` pact may affect the rights of third parties who are not shareholders of the company. The practical consequence is that a shareholders` pact should not be considered a separate document and that the parties must ensure that they examine how they interact with other corporate governance documents and rights and the interests of shareholders and third parties of the company. Day rights along are also called “return of piggyback” rights. These are common provisions in joint venture or private equity agreements that allow certain (usually minority) shareholders to coerce other shareholders who wish to sell their shares to receive an offer on shares benefiting from shares. The day along the rights serves as protection for minority holders if the majority chooses not to exercise their rights.