This is a clause to be inserted into a shareholders’ agreement.

Sometimes, when entering into a shareholders’ agreement, the shareholders contemplate the manner in which the percentage of their shareholding could change over time. For example:

• one party may acquire a certain percentage of another party’s shareholding on the happening of a certain event, such as the retirement of the latter party; or
• an employee of the company, such as a general manager, may be afforded the opportunity to purchase shares in the company on the basis of reaching certain key performance indicators.

Shareholding adjustment clauses tend to vary substantively based on each particular transaction. This optional clause is an example of the type of shareholding adjustment clause which may be used when an employee of the company is given an option to purchase shares in the company.

Using this precedent

This is a general clause which can be inserted into a shareholders’ agreement. It can also be used to add shareholding adjustment provisions to the separate precedent “Shareholders’ agreement (short form)”.  

When inserting this optional clause into an agreement, care must be taken to ensure that the agreement remains consistent. Cross-references, definitions and schedules should all be checked.

This document has been authored for LexisNexis by Elise Margow, Principal, Legally Speaking.

This document is prepared with the assistance of Specialist Editor Stephen Newman, Executive Counsel, Ponte Earle.