IBA Guide on Shareholders Agreements

Transcription

1 IBA Guide on Shareholders Agreements Nigeria Udochi Iheanacho Udochi Iheanacho Partnership 1. Are shareholders agreements frequent in Nigeria? Yes, shareholders agreements are increasingly frequent in Nigeria. 2. What formalities must shareholders agreements comply with in Nigeria? Nigerian Law does not provide for specific formal requirements with respect to shareholders agreements. However, since shareholders agreements are essentially contracts, the general rules applicable to contracts will apply. Thus for the shareholders agreements to be valid, there must be a consensus between the parties to the agreement with respect to the content of the agreement. 3. Can shareholders agreements be brought to bear against third parties such as purchasers of shares or successors? Since shareholders agreements are contracts, privity is maintained. Shareholders agreements are therefore binding only on the parties thereto. However where, as is usually the case, the agreement is indicated to enure to the benefit of and be binding upon the parties and their legal representatives, heirs, executors, administrators, successors in title and assigns, the agreement would be brought to bear against them. Also it is trite law in Nigeria that the purchaser of any asset or property is assumed to purchase it together with the rights and benefits accruing therefrom, as well as the liabilities, duties, obligations and limitations attendant thereto. 4. Can a shareholders agreement regulate non-company contents? Nigerian law does not prevent shareholders agreements from regulating non-company matters. Indeed, matters such as intellectual property rights, protection of trade secrets, mutual patronage arrangements and non-competition also usually come within the purview of shareholders agreements. 5. Are there limits on the term of shareholders agreements under the law of Nigeria? No, there are no limits under Nigerian law on the term of shareholders agreements. Shareholders agreements usually only come to an end when: (a) The company is dissolved, wound-up, makes an assignment in bankruptcy, makes a proposal to its creditors, or has a receiving order made against it;

2 (b) (c) (d) When the shareholders unanimously agree in writing that it should lapse; The company is sold to another party; or It is terminated as provided in the agreement. 6. Are shareholders agreements related to actions by directors valid in Nigeria? This matter is somewhat unsettled. Shareholders agreements, which relate to actions by directors, are valid in Nigeria because some contents of such agreements may (although indirectly) affect the actions of directors. On the other hand, the directors are under a personal responsibility to act in good faith, uberrima fidei, in the interest of the company in general and this duty may in some circumstances override some provisions of shareholders agreements. 7. Does the law of Nigeria permit restriction on transfer of shares? Nigerian law stipulates that there must be a restriction on the transfer of the shares of private companies and provides that such restriction must be stipulated in Articles of Association (by-laws) of the company. The Companies and Allied Matters Act stipulates that shares or other interests of a member in a company shall be property transferable in the manner provided in the Articles of Association of the company. 8. What mechanisms does the law of Nigeria permit for regulating share transfers? Certain mechanisms are permitted by law in Nigeria to regulate share transfers, the first of which is that every private company is required to restrict the transfer of its shares in its Articles of Association. In Nigeria the total number of members of a private company shall not exceed 50; therefore there can be no transfers that will raise the number of members of a private company above 50. The Articles of Association of a private company in Nigeria is required by law to contain a pre-emption clause to the effect that no shares of the company shall be sold or transferred to a non-member unless the shares have been first offered to existing members and no existing member is willing to purchase the shares at a fair price to be determined in accordance with the Articles. The transfer of a company s shares must be done in writing by an instrument of transfer and it is not lawful for the company to register a transfer of shares in the company, unless a proper instrument of transfer has been delivered to the company. The directors may also refuse to register the instrument of transfer if the prescribed fees are not paid and if the instrument of transfer is not accompanied by the share certificate or other appropriate evidence of ownership of the shares.

3 Further, the transfer must be subject to the approval of the directors of the company and the directors may refuse to register the transfer or transmission of any share to any person who they do not approve of and without giving any reason whatsoever. The directors may also refuse to register the transfer of a share on which the company has a lien. Until the name of a transferee is entered into the register of members of the company, the transferor shall remain the holder of the shares and all the limitations, restrictions and provisions of the Act and the articles of the company relating to the rights to transfer shall be applicable in the case of death or bankruptcy of a shareholder. In addition, shareholders agreements could also provide other restrictions such as lockup periods. 9. In Nigeria, do by-laws tend to be tailor-drafted, or do they tend to use standard formats? In Nigeria, the by-laws of a company are now standard formats. The form and contents of the by-laws of companies are contained in the 1 st Schedule of the Companies and Allied Matters Act, 2004, and are applied in that state only with such additions, omissions, or alterations as may be required in particular circumstances. 10. What are the motives in Nigeria for executing shareholders agreements? Shareholders agreements, being dependent on the desires of the parties thereto, are intrinsically more flexible than by-laws and allow more room for the shareholders to provide for a wider range of preferences, alternatives and special circumstances. Unlike by-laws, shareholders agreements are much easier to alter, amend or update. In entering into shareholders agreements, the shareholders are able to take into consideration situations that were not contemplated by the by-laws. Also, shareholders agreements provide a binding working document for the shareholders, that is out of the reach of the public view and is used extensively in acquisitions. 11. What contents tend to be included in shareholders agreements in Nigeria? The following are usually included in shareholders agreements: Structure of the company and capital contribution; Capitalisation and financing; Corporate governance (including board of directors, shareholders and their respective meetings, and sundry management matters); Earnings and distribution; Transfer of shares and restriction/regulation thereto; Pre-emptive rights of shareholders; Drag-along and tag-along rights and exit mechanisms; Certain rights of shareholders;

4 Minority protection; Resolution of conflict clause (as between the agreement and the by-laws); Deadlock mechanism; Representations and warranties of the shareholders; Restrictive covenants (non-competition/confidentiality); Intellectual property rights; Books, records and affairs of the company; Costs; Governing law/dispute resolution/arbitration; Bindingness of the agreement; Termination. 12. What determines the content included in the shareholders agreements in Nigeria? The content in a shareholders agreement is determined by a range of factors. These include the business and objects of the company, the identity, business interests and number and diversity of the shareholders, the possibility and nature of anticipated conflict and the position of the law with respect to agreements. 13. What are the most common types of clauses in shareholders agreements in Nigeria? The clauses which are most certain to be found in a typical Nigerian shareholders agreement include: Structure of the company and capital contribution; Capitalisation and financing; Earnings and distribution; Transfer of shares and restriction/regulation thereto; Pre-emptive rights of shareholders; Certain rights of shareholders; Minority protection; Resolution of conflict clause (as between the agreement and the by-laws); Deadlock mechanism; Representations and warranties of the shareholders; Restrictive covenants (non-competition/confidentiality); Intellectual property rights; Governing law/dispute resolution/arbitration; Bindingness of the agreement; Termination; Governance of the company.

5 14. What mechanisms does the law of Nigeria permit to ensure participation of minorities on the board of directors and its control? In Nigeria, the law makes no specific provision to ensure the participation of minorities on the board of directors of a company, because while it is provided in the Companies and Allied Matters Act that no company in Nigeria shall have non-voting or weighted shares so that minority shareholders are not unduly disadvantaged in the course of voting by the company in general meeting to either re-elect or appoint new directors, it is also provided that a company may by ordinary resolution remove a director before the expiration of his period of office, notwithstanding anything in its articles of association or in any agreement between it and him. It is therefore difficult if not impossible for the minority to exercise control of the board of directors of any company unless permitted to do so by the majority. 15. Is it possible in Nigeria to ensure minority shareholder control by means of a shareholders agreement? Subject to legal limitations as provided for in the Companies and Allied Matters Act referred to in 14 above as well as in the Articles of Association of the company, it is possible to ensure minority shareholder control by the means of a shareholders agreement. 16. What are the usual valuation mechanisms in connection with rights of first refusal or share transfer regulations? In Nigeria, depending on the performance of the company, the shares could be deemed at the time of transfer to have same value ascribed to them in the capital of the company. Where the shares are traded, the value will be the price at which the shares are being traded on the stock exchange (market price) otherwise the value of the shares will be determined by an independent valuation usually carried out by actuaries, accountants or investment advisers. The valuer shall require from the company such information and explanation as he deems necessary to enable him carry out the valuation or make a report. It is often provided in the Articles or the shareholders agreement that the transferring shareholder will be entitled to receive the price where applicable that he has been reasonably offered by an outsider for the shares. 17. Is it admissible for a shareholders agreement clause to refer dispute resolution to the courts other than those of Nigeria and/or under a law other than that of Nigeria? Companies incorporated in Nigeria are regulated by Nigerian law as well as matters affecting such companies including shareholders agreements and therefore jurisdiction to adjudicate over disputes is vested in Nigerian courts. As a matter of public policy the ouster of the jurisdiction of the Nigerian courts by agreement is

6 often frowned upon. However, the usual provisions in our civil procedure rules for the institution of actions often stipulate that an action as for instance in contract must be commenced where the defendant resides, or where the contract was required to be performed. In this case, where a party to the shareholders agreement is resident outside the country a provision that disputes should be referred to the courts of domicile of the foreign shareholder may be valid and enforceable depending on the circumstances. 18. Is it admissible for a shareholders agreement to include an arbitration clause with seat outside Nigeria and/or under a law other than that of Nigeria? Yes, it is admissible. In Nigeria, with respect to arbitration clauses, parties are completely unfettered in their choice of arbitration venue and the law of which country is applicable. Nigeria became a signatory to the 1958 New York Convention on Recognition and Enforcement of Arbitral Awards on 17 March Therefore courts in Nigeria will recognise arbitration clauses with seat outside Nigeria as long as there was a prior consensus to that effect.