What Is a Reserved Matters List, and What Is It For?

A Reserved Matters List is a crucial component within corporate governance, particularly in the context of shareholder agreements or corporate charters.

It delineates specific decisions or actions that can only be undertaken by obtaining prior approval from a designated authority within the company, typically either the board of directors or shareholders. The required approval is usually beyond the ordinary approval under general corporate law.

The primary purpose of a Reserved Matters List is to safeguard the interests of minority shareholders by ensuring that significant decisions, which could significantly affect the company’s direction, structure, or financial health, are not made unilaterally by the majority or by the company’s management without broader consent.

This mechanism is designed to bring balance and fairness to the decision-making process, particularly in areas where the outcomes could disproportionately impact specific groups of shareholders.

What are reserved matters in a shareholder’s agreement?

Reserved matters typically include actions such as amendments to the company’s constitution or bylaws, changes to the capital structure, decisions on mergers and acquisitions, substantial asset sales, and changes in the dividend policy, among others.

By requiring special approval for these critical decisions, the Reserved Matters List is a protective measure for all stakeholders, promoting transparency and accountability in the company’s governance practices.

Examples of reserved matters include:

• Amending the company’s constitution.
• Altering the company’s capital structure.
• Issuing dividends or making other distributions.
• Modifying the rights attached to shares.
• Initiating winding up or restructuring procedures.
• Managing the company’s intellectual property.
• Buying or selling shares or engaging in collaborations or joint ventures.
• Introducing significant changes to business operations.
• Altering the employment terms of key executives.
• Meeting obligations towards third parties, such as borrowing money or providing guarantees.
• Engaging in transactions involving directors or shareholders.

Shareholder reserved matters

Before classifying a matter at the shareholder level, consider the relevance of directors’ duties and the potential for delays in decision-making due to difficulty tracking shareholders.

Approval of reserved matters is more commonplace at the shareholder’s level, with common issues already discussed above.

These may encompass:

• Starting litigation proceedings or claims.
• Making gifts or charitable donations.
• Amending or approving the budget or business plan.
• Modifying the appointment of auditors, accounting policies, or practices.

Some matters are broader versions of the every day reserved matters, such as:

• Undertaking activities “outside the ordinary course of business.”
• Entering into unusual, onerous, significant, or long-term contracts.

Notably, some matters could be more timely, such as those concerning initial coin offerings. Users of model shareholders’ agreements must carefully assess whether the list suits their needs.

What are board Reserved Matters?

The board decides reserved matters at this level to facilitate company management.

This enables certain decisions to be vetoed by the director representing minority shareholders. Even after such provisions are drafted, the director must balance his general duties while wielding the power granted by the reserved matters, acting in good faith for the company’s success.

Common board-level reserved matters include:

• Employment and alterations to employment terms.
• Granting security interests over company assets.
• Incurring financial indebtedness.

What are some common limitations of reserved matters?

Limitations or qualifications to reserved matters typically result from negotiations reflecting:

• The degree of control or influence desired by minority and majority shareholders for their investments.
• Ensuring reserved matters are not exploited for unintended purposes.
• Preventing undue delays in the company’s decision-making process.
• Setting financial thresholds for when shareholder approval is needed, for example, incurring debt beyond a certain limit.
• Employing terms like ‘material’ or ‘substantial’ to indicate that only significant contracts or changes require reserved matter approval.
• Exempting matters approved in a business plan or budget from further approval as a reserved matter.

Reserved matters meaning

The Reserved Matters List in a shareholders’ agreement requires careful and thoughtful drafting.

An inadequately prepared list can disrupt the company’s daily operations, lead to insufficient control or influence for minority investors, or, in the worst cases, be misused, providing unintended veto power.