Shareholders’ Agreement: Non-Solicitation Provisions
In our previous discussion, we addressed non-compete provisions. In a shareholders’ agreement, the regulation of non-solicitation is largely similar to that of non-compete clauses.
As with non-compete clauses, non-solicitation provisions should:
- Restrict solicitation based on business type and territory. Partners may be restricted from soliciting employees or clients from the joint venture to their own competing projects. It is essential to clearly define the scope of "competing activity" to avoid ambiguity.
- Specify who is subject to the non-solicitation restriction. The prohibition on soliciting employees must apply to all relevant persons, ensuring that the restriction covers not only individuals directly involved but also any associated entities. It is also important to clarify that the recruitment of individuals through standard hiring processes (such as responses to publicly advertised vacancies) is not considered solicitation.
- Set a time limit on the restrictions. Typically, such restrictions remain in force throughout the duration of the partnership and continue for an additional 1-2 years following its termination.
- Determine liability for breach of the agreement. The agreement may include provisions for compensation and penalty clauses in the event of a violation.
Within a shareholders’ agreement, the following non-solicitation restrictions may be included:
- Non-solicitation of employees: Partners agree not to hire employees involved in the joint project without the consent of the other partner. This helps maintain the integrity of the team and avoids loss of key personnel.
- Non-solicitation of clients and contractors: Partners undertake not to solicit clients or contractors of the joint business with whom they had contact during the partnership. This protects business relationships and mitigates the risk of losing critical counterparties.
Non-solicitation provisions in a shareholders’ agreement are essential for safeguarding the business interests of all parties. They prevent the loss of key employees, clients, and contractors, help maintain stability and trust within the team, and provide a legal framework for addressing breaches and enforcing liability.
We regularly discuss these and other features of shareholders’ agreements in our Telegram channel, "Lawyers in Cyprus" – #SHA.
Author: Kuheika Irina
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