Shareholder Agreement Template

SHAREHOLDERS AGREEMENT

A shareholder agreement (also known as a stockholders’ agreement) is a written contract that establishes and clarifies the structure and nature of the shareholders’ relationships with the corporation and one another. Corporations value this form of agreement since it helps to build a solid basis for the corporation.

This agreement governs how the company’s owners and directors interact with one another, therefore it must be strong, thorough, and well-thought-out. It’s also crucial to spend time on this document because it protects shareholders’ interests, prevents conflicts, and governs share transfers.

How to Write a Shareholders Agreement

A shareholders agreement is a vital document for any company with multiple owners. It outlines the rights, responsibilities, and obligations of the shareholders. This legally binding agreement ensures that all shareholders are on the same page about the management and direction of the company, as well as how shares should be bought, sold, or transferred.

Here’s a step-by-step guide on how to write a shareholders agreement or you could just fill in your information above and download your personalized shareholder agreement:

1. Title of the Agreement

Start by giving the agreement a title that clearly indicates its purpose, such as “Shareholders Agreement of [Company Name].”

2. Introduction

Begin with an introductory clause that identifies:

• The company name.
• The date of the agreement.
• The parties involved (i.e., shareholders).
• The purpose of the agreement.

Example: “This Shareholders Agreement is made on [Date] by and between [Company Name], a company incorporated under the laws of [Country], and the shareholders listed herein.”

3. Definitions and Interpretation

Define the key terms used in the agreement, such as “Shares,” “Shareholder,” “Board of Directors,” and other relevant terms. This will ensure that there’s no ambiguity in the document.

4. Share Capital and Ownership

This section outlines:

• The number and class of shares issued in the company.
• The shareholders and their respective percentage of ownership in the company.
• Any provisions regarding the issuance of new shares.

5. Governance and Management

• Board Composition: Describe how the board of directors will be composed, including the number of directors, how they are elected, and any rights shareholders may have to appoint or remove directors.
• Voting Rights: Specify the voting powers of shareholders and how decisions will be made, such as majority voting or unanimous consent for certain decisions.

6. Transfer of Shares

A crucial section for protecting the company’s control. This part governs how shares can be transferred or sold, including:

• Pre-emption Rights: These rights allow existing shareholders to purchase shares before they are offered to outsiders.
• Exit Strategy: Outline what happens if a shareholder wishes to exit, including buy-out clauses.
• Right of First Refusal (ROFR): Shareholders may need to offer their shares to other shareholders first before selling to outsiders.

7. Dividends and Profit Distribution

Describe how profits will be distributed, including the rate of dividend payouts or reinvestment of profits into the business.

8. Dispute Resolution

Provide a process for resolving disputes between shareholders. This might include mediation, arbitration, or a step-by-step escalation process.

9. Confidentiality

Include a confidentiality clause that prevents shareholders from disclosing sensitive company information to third parties.

10. Exit and Termination

Outline the conditions under which the agreement can be terminated or modified, such as upon the dissolution of the company or mutual agreement.

11. Miscellaneous Provisions

Include standard legal provisions such as governing law, amendments to the agreement, and force majeure clauses.

12. Signatures

End the document with the signatures of all shareholders, acknowledging that they agree to the terms laid out in the shareholders agreement.

Frequently Asked Questions (FAQs) About Shareholders Agreements

1. What is the purpose of a shareholders agreement?

A shareholders agreement ensures that the rights and obligations of each shareholder are clearly defined, preventing conflicts and providing a roadmap for business operations, decision-making, and share transfers. It establishes rules for governance, exit strategies, and dispute resolution, providing clarity and stability for all parties involved.

2. Do all companies need a shareholders agreement?

While not legally required, a shareholders agreement is highly recommended for any company with more than one shareholder. It helps avoid misunderstandings and can provide clear guidelines on important matters such as share transfers, disputes, and decision-making processes.

3. What happens if there is no shareholders agreement?

Without a shareholders agreement, disputes among shareholders can become complicated, and the default rules in company law may not be suitable for the business’s specific needs. It can also lead to challenges in areas like share transfers or voting disputes, as there are no agreed-upon terms.

4. What should be included in a shareholders agreement?

A shareholders agreement should cover:

• Share ownership and capital structure.
• Governance and management of the company.
• Procedures for transferring shares.
• Rights to dividends and profit distribution.
• Exit strategies and buy-out provisions.
• Dispute resolution mechanisms.
• Confidentiality clauses.

5. Can shareholders agreements be changed?

Yes, shareholders agreements can be amended with the consent of all parties involved. Typically, amendments require a unanimous vote or a majority decision, depending on the terms of the original agreement.

6. What happens if a shareholder breaks the agreement?

If a shareholder breaches the terms of the shareholders agreement, the consequences will depend on the specific provisions outlined in the document. This might include buy-out clauses, forced sale of shares, or other penalties.

7. How long is a shareholders agreement valid for?

A shareholders agreement is valid for as long as the company exists, unless otherwise specified. It can be terminated or modified if the shareholders agree to do so, or in the event of a company dissolution.

8. What is a right of first refusal in a shareholders agreement?

A right of first refusal (ROFR) allows existing shareholders to purchase shares from a selling shareholder before the shares are offered to outside buyers. This provision ensures that the ownership remains within the existing shareholder group and gives them control over who becomes a shareholder.

9. How do I write a shareholders agreement for a startup?

For a startup, the shareholders agreement should address key issues like the allocation of shares among the founders, vesting schedules, funding rounds, and exit strategies. It should also outline governance structures and decision-making powers, which may be particularly important as the business grows.