D&P Law Now

The Inside Scoop on Shareholders’ Agreements

On 15 February 2023, Farm Fresh Berhad “(“Farm Fresh”) announced its plan to scoop up a 65% stake in the ice cream chain, The Inside Scoop Sdn. Bhd. (“Inside Scoop”) from its existing shareholders. In addition to entering into a share purchase agreement with the shareholders for the proposed acquisition of 462,739 ordinary shares in Inside Scoop, Farm Fresh also intends to enter into a shareholders’ agreement with Inside Scoop’s co-founder, Edmund Tan (“Tan”) to regulate the relationship of both parties. This begs the question, what exactly is a shareholders’ agreement, and why did Farm Fresh and Tan feel the need to enter into one?

What is a shareholders’ agreement?


A shareholders’ agreement is a legal document

that outlines the rights, responsibilities, and obligations of the shareholders in a company. It acts as a “rule book” and typically covers a wide range of issues, including the transfer of shares, voting rights, the appointment of directors, and the distribution of profits.

A shareholders’ agreement serves as a comprehensive document that outlines the rights and responsibilities of shareholders before co-investing in a company. It provides a framework for establishing clear guidelines for their relationship with one another and addresses important considerations, such as procedures and outcomes in the event of a shareholder’s exit. It ensures transparency, fairness, and a solid foundation for effective collaboration and decision-making among shareholders.

Why is it important post-acquisition?

A shareholders’ agreement is vital post-acquisition as it ensures effective governance and clearly defines the roles and responsibilities of each shareholder in the company going forward. It also plays a crucial role in safeguarding the rights of founders, particularly in the context of acquisitions where the founder’s ownership is reduced to a minority stake and new majority shareholders are introduced.

By drawing on the real-life case study of the proposed acquisition of Inside Scoop, we aim to showcase the indispensable role of shareholders’ agreements in safeguarding the rights of a company’s founder by focusing on the following two key clauses employed in the Inside Scoop shareholders’ agreement:

  1. Board Reserved Matters and Management Role
  2. Put-Option

Board Reserved Matters and Management Role

The Inside Scoop shareholders’ agreement features an extensive list of board reserved matters, which provides, amongst others, that any alterations to the company’s business plan must require the affirmative vote of Tan (or a director appointed by him). Additionally, Tan retains the right to serve as Inside Scoop’s Managing Director and can actively manage the company’s operations for as long as he continues to own shares.

Collectively, these provisions in the Inside Scoop shareholders’ agreement safeguard the founder’s strategic vision for the company by enabling him to run the day-to-day management of the company, maintain decision-making authority on key issues, and set long-term objectives for the company.


The Inside Scoop shareholders’ agreement also boasts a powerful put option clause that grants Tan the authority to compel Farm Fresh to purchase any of his remaining shares in Inside Scoop should certain triggering events occur. These events include, amongst others, any attempts to oust Tan from his position as Managing Director, or to strip Tan (or any director appointed by him) of their role as a shareholder or director of Inside Scoop.

This put option clause provides Tan with significant protection against potential threats to his role and influence within Inside Scoop. It serves as a deterrent to any attempts by other shareholders or directors to push him out or marginalise his position, as they would risk being forced to buy out his shares at a fixed price. Additionally, this clause also ensures that Tan’s investment in Inside Scoop remains a profitable one, as he has the ability to sell his shares at a specified price if he ever wishes to exit the company.

Key Takeaway 

Overall, these clauses in the Inside Scoop shareholders’ agreement offer Tan a formidable mechanism to preserve his authority and safeguard his investment and role in the company.