Legal Updates

A shareholders agreement will bind its signatories despite the provisions of the articles of association of the company

February 12, 2024

After differences of opinion emerged between three shareholders in a company who also serve as directors of the company, two adopted a resolution according to which the company would file a lawsuit against the third, despite the founders agreement which stated that all resolutions should be made unanimously.

The Court held that the lawsuit should be dismissed because the shareholders did not have the authority to reach such resolution on behalf of the company. The company's board of directors is the organ with the authority to make a decision regarding filing a claim and representation for the company. When a company's founders agreement stipulates voting arrangements, deviations from such can only be made with the prior approval of the Court, after which the directors will be able to make a resolution on filing a lawsuit in a way which deviates from the founders agreement. Here, the founders agreement expressly stated that all resolutions concerning the management of the company and its business will be made by unanimous vote, and in the absence of such, through an arbitrator. The two shareholders approved the lawsuit through a shareholders decision, and not a board of directors resolution, but this resolution is not valid, becuase the shareholders should have first approached the Court to approve deviation from the obligation to reach a unanimous resoltution, and only then could they have reached a board of directors resolution by a simple majority as the see fit.