Should a client use a shareholders agreement under Cyprus Law?

Jun 23, 2017

When establishing a company it is necessary to think about the future and calculate the risks in advance, regarding the relations between the shareholders. Therefore, a shareholders agreement remains one of the most effective tools through which parties can not only resolve the controversial issues arising in their activities, but also avoid the potential of both internal and external conflicts.

A Shareholders agreement contains all important terms and conditions, strongly advised by lawyers to safeguard the partners from:

  • Disputes, regarding the deadlock situation
  • the appointment and removal of directors
  • disputes, regarding transfer of shares
  • Unfair distribution of dividends

Further any term of a Shareholders’ Agreement which contravenes or violates any statutory provision of the Law is invalid and unenforceable under Cyprus law. For example, the statutory right of the shareholder of a Cyprus company to petition for the winding up of the Company before the Cyprus courts cannot be limited or extinguished by any agreement or contract.

The terms of a Shareholders’ Agreement can be incorporated in the Articles of Association of the Company. By doing so the Company and its shareholders will avoid the risk of the adoption of any action or decision by the directors of the company, which might violate the terms of the Shareholders’ Agreement so as to give notice to all persons about the limits and extent of the powers of the board of directors of the Company.

Attention should be given to the fact, that the shareholders agreement is confidential, however in case when the terms of such agreement are incorporated in the Articles of Association, the content will be available for public.

In conclusion, it is strongly recommended to seeking legal advice if you are not confident which provisions to be included in such an agreement.

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