This answer is written by AI. The information provided in this response is intended for general informational purposes only and should not be considered as legal advice. Do not rely solely on the information provided in this response for any legal decisions. Consult with a qualified legal professional before making any decisions.

How Effective Is This Contract Clause?

Question from KK, How Effective Is This Contract Clause?

Answer from AI:

Evaluating a contract clause without context can be challenging, as the effectiveness of a clause depends on the overall intent of the contract, the applicable law, and how well the clause integrates with the rest of the document. However, we can analyze the provided clause for clarity, legal soundness, and potential issues.

Clarity and Precision

The clause is relatively clear in stating that a transfer of shares to a trustee is considered a transfer to the party that appointed the trustee. It also specifies that certain formalities typically required for share transfers do not apply in this case.

Legal Soundness

The clause attempts to bypass certain formalities of the Shareholder Agreement (SH Agreement) and the need for a trustee to become a party to the Termination Agreement. This could raise questions about the enforceability of such provisions, as they may conflict with mandatory legal requirements or the terms of the SH Agreement itself.

Potential Issues

  • The clause assumes that the SH Agreement and other legal requirements allow for such an exception, which may not be the case.
  • It may not be enforceable if it conflicts with mandatory provisions of corporate law or the terms of the SH Agreement.
  • The clause does not address the rights or obligations of the trustee, which could lead to ambiguity or disputes.


It is advisable for individuals or entities involved in drafting or reviewing contract clauses to:

  • Ensure that the clause is consistent with all relevant laws and the provisions of related agreements.
  • Consider the implications of bypassing formalities and whether this could affect the rights of any party.
  • Consult with a legal professional who specializes in contract law to ensure the clause is enforceable and achieves the intended purpose.

Rating and Employment Consideration

On a scale of 1 to 10, where 1 is ineffective and 10 is highly effective, this clause might be rated around a 5 or 6, as it shows an understanding of the concept of transferring shares to a trustee but may overlook potential legal complexities. Whether the drafter is suitable for employment at a law firm specializing in contracts in the US would depend on a broader evaluation of their legal knowledge, drafting skills, and ability to navigate complex legal issues.

For personalized advice and a thorough review of contract clauses, it is essential to consult with a contract attorney. They can provide guidance tailored to the specific circumstances and legal jurisdiction involved.

For more information on contract law and drafting, you can visit resources such as the Legal Information Institute’s page on Contract Law.

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