Shareholder agreements can unintentionally cost you control of a newly acquired business.

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Did you know that shareholder agreements (SHAs) can unintentionally cost you control of a newly acquired business?

Today, let's talk about SHAs. Typically, the SHA is a critical document to work on before closing any new business deal.  All investors involved would insert as many protective provisions as they can — capex approval rights, anti-dilution clauses and so on. These may seem harmless, but some can quietly affect an investor's ability to consolidate a new company under international accounting standards. The ability to consolidate another company could mean a lot, when you’re after the benefits of consolidation, such as being able to recognize in full the revenue contribution of the investee and to obtain additional financing. 

Legal protection doesn't always mean financial control.  Investors need to pay close attention to clauses that signify the existence of power—power that can significantly affect returns derived from the investee before finalizing the SHA.  These are the provisions that spell the difference between whether an investor welcomes a new subsidiary into the group or not.

Have an SHA you're unsure about? Contact VMC.

VMC's views are general insights—not one-size-fits-all advice. Every company's situation is unique.