Loan and Shareholder Agreements in Singapore
The business environment is full of agreements between businesses and individuals. While oral agreements can be used, most businesses use formal written contracts when engaging in operations. Written contracts provide individuals and businesses with a legal document stating the expectations of both parties and how negative situations will be resolved. Contracts are also legally enforceable in a court of law and often represent a tool that companies use to safeguard their resources.
A shareholders’ agreement is not mandatory but extremely useful. Every Singapore company that has more than one shareholder is well advised to put a shareholders’ agreement in place. It regulates the affairs and behaviours of all shareholders and forces each shareholder to think through his or her responsibilities in the company moving forward. Such an agreement would decrease the probability of future conflicts between shareholders should a difference in views arise.
Some non-exhaustive points to note about a shareholders’ agreement for companies in Singapore:
- It gives shareholders greater protection than the company’s memorandum and articles of association alone
- Most companies are often set up with just the standard articles that will not include much provision for protecting shareholders or define the limits of their responsibilities
- It is a private document unlike the company’s memorandum and articles of association and is only viewed by the parties to the agreement
- It can include any arrangement agreed between the shareholders further to the company’s act which governs how a company should run
- It can regulate the sale of shares to third parties/ investors
- It is a cost effective alternative to minimise any potential disputes between shareholders by detailing how certain decisions are to be made and all parties can agree on the procedures for dispute resolution should one arise in the future
- It can protect the rights of the minority shareholders
Unless you are prepared to forgo repayment, whenever money is involved it always makes sense to document such a transaction. Loaning any person or company a sum of money should be made with a loan agreement. This would prevent any ambiguity or dispute at a later period in time.
Things to consider when entering into a loan agreement:
- the loan amount
- mode of repayment
- interest charges (if any)
- payment of interest
- consequences of the borrower’s default
- If the loan amount is a huge sum, do consider security for the borrower’s promises such as mortgage, charge or guarantee
Agreement for Sale and Purchase of Shares/Assets/Intellectual Property
A common agreement in the business world is an agreement for sale and purchase of shares/assets. Depending on the situation, it can be a simple agreement or a complex one. But the purpose is the same. Just like other legal agreements, such a document provides certainty as to the value, identity and ownership of the shares/assets to be sold, and the amount to be paid and the method of payment to be provided in exchange for the shares. In accordance with good corporate governance, any sale and purchase of shares/assets should be documented with a written agreement.
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– harmony or accordance in opinion or feeling. “the governments failed to reach agreement”
– a negotiated and typically legally binding arrangement between parties as to a course of action. “a trade agreement”