Fillable Form Shareholder Agreement

What is a Shareholder Agreement?

A Shareholders Agreement is a legal document that outlines the rights, responsibilities, and obligations of a company's shareholders. It establishes how the company will be managed, details the distribution of shares, and defines procedures for decision-making among shareholders. The agreement is essential in private companies, where the number of shareholders is limited, and decisions have a significant impact on the business's operations.

Shareholder agreements are crucial for maintaining harmony among stakeholders by clearly stipulating the terms and conditions all parties must adhere to, thereby minimizing the chances of conflicts. In instances where a shareholder dispute arises, such as when a shareholder diverts company funds, mismanages property or company assets that they or another shareholder owns, or disagrees with decisions made by the majority shareholder, a written shareholder agreement acts as a safeguard, providing a predefined resolution pathway. These written shareholder agreements cover all the shareholders, ensuring that their interests are protected while also detailing ownership and equity distribution, which can be particularly vital when dealing with dividend payments. By having such an agreement in place, both the company and the other shareholders can pursue the company's objectives with confidence and clarity.

How do I fill out a Shareholder Agreement?

A fillable template for a Shareholder Agreement can be found here. If more terms or provisions need to be included, you may edit the form to add them in. Make sure that all parties read and understand all articles in this form to avoid confusion.

Effective Date

Enter the date that this agreement will become active.

Corporation Name and Address

Enter the name of the corporation, what type of corporation it is, and its address.

Company Name and Address

Enter the name and address of the company.

Article I

This section outlines the purpose that this agreement will serve.

Article II

This section outlines the rights and obligations of the management.

Article III

This section outlines the distribution of profits and losses. Enter the frequency at which the net income will be distributed.

Article IV

This section outlines the preemptive rights granted to shareholders. Enter the number of days that remaining shareholders have to exercise their right of first refusal.

Article V

This section outlines the term and termination of the agreement. Enter or attach a list of the situations that would result in the termination of this agreement.

Article VI

This section outlines miscellaneous terms for this agreement. Enter the state under whose laws this agreement is governed by, then enter any other miscellaneous terms and rights that are important for the shareholder to know about.

Signature

Enter the company’s name in the space provided, then have their representative sign the form in the space provided and enter their name and title.

Frequently Asked Questions (FAQs)

When should a Shareholder Agreement be created?

Ideally, it should be created at the inception of the company or whenever new shareholders join. Delaying the agreement can lead to disputes and uncertainty in the event of disagreements.

What are voting rights in a Shareholder Agreement?

Voting rights detail how shareholders can vote on major company decisions, such as mergers, acquisitions, or changes in management. The agreement may outline how votes are weighted based on share ownership.

Can a Shareholder Agreement limit the transfer of shares?

Yes, it often includes provisions that restrict the sale or transfer of shares to non-shareholders. A common clause is the "right of first refusal," which allows existing shareholders to buy shares before they are sold to outsiders.

What is a "right of first refusal" in a Shareholder Agreement?

It grants existing shareholders the right to purchase shares before they are offered to third parties. This prevents unwanted individuals or entities from gaining control of the company.

How does a Shareholder Agreement protect minority shareholders?

It often includes clauses that protect minority shareholders from being overruled by majority shareholders. These protections can include veto rights or requiring a supermajority for major decisions.

What happens if a shareholder dies or becomes incapacitated?

The agreement can specify what happens to the deceased or incapacitated shareholder's shares. Often, existing shareholders are given the opportunity to buy those shares to maintain control within the group.

Can a Shareholder Agreement be amended?

Yes, but amendments typically require the approval of all or a majority of shareholders. The process for amending the agreement is usually outlined within the document itself.

How does a Shareholder Agreement handle dividend distribution?

It can specify when and how dividends are distributed to shareholders. This ensures clarity and fairness in how profits are shared among shareholders.

Does a Shareholder Agreement include dispute resolution procedures?

Yes, many agreements include clauses for resolving disputes among shareholders, such as mediation or arbitration. This helps avoid lengthy and costly litigation.

What is a drag-along clause in a Shareholder Agreement?

A drag-along clause allows majority shareholders to force minority shareholders to sell their shares if a buyer offers to purchase the entire company. This ensures that a sale can proceed without opposition.

What is a tag-along clause in a Shareholder Agreement?

A tag-along clause protects minority shareholders by allowing them to join a sale if the majority shareholders sell their shares. It ensures minority shareholders receive the same offer as majority shareholders in a sale.

Can a Shareholder Agreement prevent the dilution of shares?

Yes, it can include provisions to prevent share dilution by limiting the issuance of new shares without shareholder approval. This protects existing shareholders' ownership percentages.

What is a pre-emption right in a Shareholder Agreement?

Pre-emption rights give existing shareholders the right to purchase new shares before they are offered to external investors. This protects shareholders from dilution of their ownership stake.

Can a Shareholder Agreement restrict how the company is managed?

Yes, it can include clauses that define how key management decisions are made, such as who has the authority to hire executives or approve budgets. This prevents unilateral decision-making by a single shareholder or director.

What are the consequences of violating a Shareholder Agreement?

Violating the agreement can result in legal action, including lawsuits for breach of contract. Remedies may include financial compensation or other enforcement actions.