Shareholders Agreement - Recapitalization

[smerhebi]

Hello Everyone,

I hope I'm posting in the right place and sorry if I'm not. We are a startup in new technologies, currently negotiating the entrance of investors. Our investors proposed a Shareholders Agreement, we have doubts that the investors are giving themselves the right to force us to recapitalize with a company of their choice.

Is this a standard term or should I refuse such clause?

Below is the full clause:

"The Parties agree to co-operate with each other in the running and operation of the Company. Subject as otherwise required by applicable laws or by this Agreement, the business of the Company shall be conducted in such way as to maximise profit available for distribution to the Parties to the extent consistent with good business practice. The Parties agree in this respect that, upon the recommendation of the investors, the directors shall vote in favour of the conduct by a specified Company of a Recapitalization."

Thank you.

[Freelancier]

The clause is unclear. Which means -- unless there are definitions somewhere else that you didn't tell us about -- that it's not going to be enforceable. I hate unenforceable clauses in contracts, because it's just a gray area that requires lawyers to get involved again. Have them re-state that sentence in English in the contract. If they give you the "that's just a standard clause", get them to define this "standard clause" (which, by the way, shows up nowhere in google) in writing to you, so that you can say that "this e-mail has the understanding that we both agreed to in respect to this clause".

[smerhebi]

Hello Freelancier,

Thank you for the reply. There are no other definitions related to that clause. We will follow your advice and ask for re-stating the sentence.


The clause is unclear. Which means -- unless there are definitions somewhere else that you didn't tell us about -- that it's not going to be enforceable. I hate unenforceable clauses in contracts, because it's just a gray area that requires lawyers to get involved again. Have them re-state that sentence in English in the contract. If they give you the "that's just a standard clause", get them to define this "standard clause" (which, by the way, shows up nowhere in google) in writing to you, so that you can say that "this e-mail has the understanding that we both agreed to in respect to this clause".