Legal Updates

A shareholders agreement obligates its party and not third parties

July 12, 2021

The founders of the Ethniks band, led by Ze'ev Nechama, established a company through which the band's activities were carried out and signed a shareholders agreement that would regulate the band's activities and their rights and obligations, as well as the management of future income from the band's activities. After one of the band members stopped being a part of it, the other three - Ze'ev Nechama, Gal Hadani and Yoram Poizner - joined singer Eyal Golan and started performing with him. The company demanded from the four accounts about their income from performances due to a right by virtue of the shareholders agreement to percentages in every transaction with company customers.

The Court dismissed the claim. An application for the provision of accounts requires the existence of a special relationship between the parties (such as an agency, authorization, partnership or trust) and the existence of a right regarding the funds about which it is requested to receive accounts. Here, there is a shareholders agreement between the company and Ze'ev Nehama. The other two band members are party to the agreement by virtue of conduct since they have been acting on it for years. However, the shareholders agreement binds the parties thereto only and there is no doubt that Eyal Golan was never a party to the shareholders agreement. Thus, there is a special relationship by virtue of the shareholders agreement with the band members, but there is no right towards Eyal Golan who is not a party to the shareholders agreement. Furthermore, because the shareholders agreement confers a right in transactions with company customers and Eyal Golan carried out business cooperation with the band and was not its consumer, the claim was also rejected against the three members of the band.