Halvorsen & Reith

Shareholders' agreement review for international holding structures

A shareholders' agreement review answers one question: does the agreement your shareholders actually signed still match what the company's constitution and its public register say. In a holding structure with entities in more than one jurisdiction, the answer is often no, and the gap sits exactly where a dispute, a sale or a new investor will look first. This page sets out when the review becomes necessary, what it produces, and what the engagement does not cover.

A group holding company has three shareholders under one agreement drafted for the parent, and two subsidiaries whose articles were never updated to match it. A new investor's lawyers ask which document controls a deadlock clause, a transfer restriction and a drag-along right. Nobody in the group can answer with certainty, because the last person who compared the two documents left the company two years ago.

What follows sets out the trigger points that make this review urgent, the sequence in which the work is produced, the jurisdictional variation that changes the analysis, and the boundary the engagement does not cross.

The situation a shareholders' agreement review addresses

The need for a shareholders' agreement review rarely announces itself. It surfaces when a transaction forces someone to read the founding documents side by side: a new investor subscribing for shares, a shareholder exercising a pre-emption right, a joint venture partner threatening to block a resolution, or a lender asking for confirmation that the agreed governance terms bind every entity in the structure, from the entity's own registered office outward.

The company's articles are usually consistent with the requirements of local company law, because a regulatory filing enforces that discipline directly at the point of registration. The shareholders' agreement is different. It is a private contract, filed nowhere and checked by no registrar, and it drifts from the articles the moment either document is amended without the other being read again. That drift is easy to overlook until a counterparty forces the comparison, in the way the position under the constitution of an entity registered in the Abu Dhabi Global Market illustrates.

A group that holds entities in several jurisdictions multiplies the problem. Each entity's articles are drafted to its own local rules; the shareholders' agreement is drafted once, centrally, and assumed to sit on top of all of them without contradiction. That assumption is rarely tested until it has to be relied upon.

What triggers it and why the timing matters

Three events routinely force the question. A funding round brings in a new class of shares and a new set of protective provisions that have to sit alongside the existing agreement without silently overriding it. A shareholder dispute reaches the point where someone asks which document actually governs a deadlock or an exit mechanism. A sale process reaches due diligence, and a buyer's counsel asks for a schedule showing which articles, shareholder and joint venture agreements apply to which entity, and where they diverge.

Where a transfer restriction or a pre-emption right runs from the date notice is given, the window for exercising it closes on a fixed date, and a shareholder who has not confirmed which document's version of that right applies risks finding the window has closed off before the question is even resolved.

A review is worth commissioning before any of the following applies, not after:

Timing matters because most of the value in a shareholders' agreement review lies in doing it before an event forces it, not after. Once a resolution has been passed or a transfer has completed on the strength of one document, correcting the other after the fact is a narrower, more defensive exercise, and some of what could have been fixed in advance can no longer be undone.

A group that has never compared its shareholders' agreement against the articles of every entity it holds is carrying a divergence it has not yet had to price. The cost of finding it during a transaction is higher than the cost of finding it now.

Review your appointment terms. Write to info@hreithlaw.com with the jurisdiction and the structure.

Deliverables and the sequence in which they are produced

The review is produced in a fixed sequence, so that each output feeds the next one rather than duplicating it.

Each deliverable is written to stand on its own. A board that receives only the comparison memorandum can act on it without waiting for the marked-up drafting, and a board that needs the drafting first can defer the wider board pack until the correction is agreed.

Where this differs by jurisdiction

The exercise does not travel identically across jurisdictions, and the difference is not cosmetic. In jurisdictions where the constitution is treated as the primary governance document under local company law, and the shareholders' agreement as a supplementary contract, the review has to establish which provisions of the agreement are actually enforceable against the company itself, as distinct from being enforceable only between the shareholders who signed it. In jurisdictions that allow the agreement to be entrenched directly into the constitution, the review instead has to check whether that entrenchment was drafted the way the shareholders intended, or whether it silently narrowed a right the agreement meant to preserve.

A number of common-law offshore centres take one approach to this question, illustrated by how an exit deadlock is treated across Hong Kong and Cayman. A number of EU member states and civil-law systems take a different one, and the majority required to amend the articles is frequently the point where the two approaches diverge most visibly. Which approach applies to a given entity is not something this page states in the abstract, because it depends on where that entity is incorporated.

Where a jurisdiction sets a fixed period for objecting to an amendment once notice has been given, that period runs from the date of notice, not from the date a shareholder in a different time zone actually reads it. The objection ceases to be available once the period has run, whatever the shareholders' agreement assumed about consent.

The coverage note that follows from this: every jurisdiction in the group has to be checked against its own governing rules before any provision is treated as settled, and this page does not substitute for that check. It sets out the questions the check has to answer, not the answers themselves for a jurisdiction that has not yet been confirmed.

What this service does not include

This review does not include acting as, supplying, sourcing or arranging a director, a company secretary, a nominee shareholder or a trustee for any entity in the structure. It does not include any activity for which a trust or corporate service provider licence is required, and the firm holds no such licence. That boundary is not a matter of preference. In a number of the jurisdictions covered by this practice, arranging for a person to hold one of these offices is itself a licensed activity, and a firm without the licence has no basis on which to perform it, whatever a client would prefer.

Because the entity's registered office and its register of directors are matters of public record, the review distinguishes clearly between what is publicly filed and what remains a private contractual matter between shareholders. What the client receives instead of an appointment is the requirement mapped against the entity's actual documents, the criteria a director appointment or a nominee arrangement would have to satisfy set out in writing, the existing appointment terms reviewed against those criteria, and the exposure that follows from any gap assessed and put in front of the board. Where the group needs a person appointed, that appointment is made by the board itself, on terms this review can test but not supply.

Where the appointment terms for a director or officer were drafted before the shareholders' agreement was last amended, the terms and the agreement may now impose inconsistent obligations on the same person. That inconsistency is usually discovered by the office holder, not by the company, and at the worst possible time.

Review your appointment terms. Write to info@hreithlaw.com with the jurisdiction and the structure.

Frequently asked questions

Who inside the company is responsible for shareholders' agreement review?
Responsibility sits with the board, not with an individual shareholder, because the board is the body that has to act consistently with both the articles and the agreement. In practice one director or the general counsel is usually asked to hold the comparison memorandum once it exists, but the obligation to act on it belongs to the board as a whole.
What evidence should the board keep on shareholders' agreement review?
The comparison memorandum and the consistency matrix should sit in the entity's minute book alongside the resolution that considered them, not in a separate deal file that outlives the transaction it was created for. A board that cannot later produce that record has no way to show it turned its mind to the divergence at the time.
What happens if shareholders' agreement review is not addressed?
The divergence does not resolve itself; it sits latent until a transfer, a dispute or a due diligence process forces someone to rely on one document over the other. At that point the choice between the two is made under time pressure, often by a court or a counterparty's lawyers rather than by the board.
How often should shareholders' agreement review be reviewed?
There is no fixed interval that fits every structure. The trigger is not a calendar date but an event: a new shareholder, a new class of shares, an amendment to the articles in any one entity, or a jurisdiction being added to the group. Any of those should prompt a fresh review, however recently the last one was done.
Does shareholders' agreement review change for a foreign-owned company?
Yes, because a foreign-owned entity is more likely to have a shareholders' agreement drafted under a different jurisdiction's law than the entity's own constitution, which is exactly the divergence this review exists to catch. The review has to read the agreement's governing law clause first, before comparing its substantive terms against the local articles.

Lukas Verhoeven – Expert author, constitutional documents

Lukas advises boards and general counsel on the coordination between constitutions, shareholders' agreements and joint venture arrangements across group structures. His work concentrates on the point where a governance document that reads correctly in isolation stops matching the document sitting next to it. He writes on the mechanics of amendment, entrenchment and cross-border consistency rather than on any single jurisdiction's law.

By Sofia Anselm