This is an arrangement between the shareholders of a company describing how the company should be operated and the shareholders’ rights and obligations. This agreement covers the regulation of the shareholders’ relationship, ownership of shares and privileges, the management of the company and the protection of shareholders. This agreement ensures that shareholders are protected and are treated fairly. This agreement can be between all or some of the shareholders. The agreement covers sections that deals with fair and legitimate pricing of shares. The agreement will also help shareholders determine future shareholders.
Shareholders’ agreement regulates the following:
- control and management of the company, which may include power for certain shareholders to designate individual for election to the board of directors, imposing super-majority voting requirements for “reserved matters” which are of key importance to the parties, imposing requirements to provide shareholders with accounts or other information that they might not otherwise be entitled to by law.
- regulates the ownership and voting rights of the shares in the company, including lock-down provisions, restrictions on transferring shares, or granting security interests over shares, pre-emption rights and rights of first refusal in relation to any shares issued by the company (often called a buy-sell agreement).
- making provision for the resolution of any future disputes between shareholders, including deadlock provisions, dispute resolution provisions.
- protecting the competitive interests of the company which may include restrictions on a shareholder’s ability to be involved in a competing business to the company, restrictions on a shareholder’s ability to poach key employees of the company.
In addition, shareholders agreements provides for the following:
- the nature and amount of initial contribution (whether capital contribution or other) to the company
- the nature of the business
- how future capital contributions are to be made
- law governing the shareholders’ agreement
- ethical practices or environmental practices
- allocation of responsibilities
Let Freedom Rings help guide you through the process of getting your Shareholder’s Agreement together