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PROTECTING THE COMPANY

Non-Compete

The shareholders of a company are likely to know the business inside-out, including its customers and suppliers. In order to protect the business of the company a shareholders agreement should include non-compete provisions. The shareholders can agree that:

  • while the shareholder holds shares; and
  • for a reasonable period after those shares are sold,
the shareholder is not permitted to set-up a rival business or otherwise compete with the company. This restriction should apply to a defined territorial area and for a defined time after the shareholder sells their shares.

No Poaching Customers or Staff

In an effort to protect the business of the company, shareholders agreement often contain provisions to prevent shareholders from:

  • poaching staff employed by the company;
  • poaching customers of the company; and
  • interfering with the supplier of the company (e.g. procuring that a supplier no longer supplies goods to the company).

These provisions should apply while the shareholders hold their shares and for a reasonable period after those shares have been sold.

Confidentiality

A shareholders agreement can impose an express duty of confidentiality on the shareholders in relation to company information, including information relating to:

  • customers and suppliers of the company;
  • the business and the company itself; and
  • the terms of the shareholders agreement.

This duty of confidentiality should continue after the shareholders cease to hold shares in the company.


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