Most Common Things to Include in a Shareholder Agreement
Here are some of the main points (i.e., a checklist) to include in a shareholder agreement.
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Here are some of the main points (i.e., a checklist) to include in a shareholder agreement.
- Structure
What is the “structure” of the company (and how is equity divided among shareholders)?
- The kind of agreement
Should the agreement be unanimous and involve all (or just some) of the shareholders?
- Who will own shares
Who owns (or will own) shares (i.e., the parties to the agreement)?
- Vesting provisions
Are there vesting provisions (i.e., shares may be subject to cancellation if a shareholder/manager quits)?
- Pledge or hypothecate their shares
Are shareholders allowed to pledge or hypothecate their shares?
- Board members
Who is on the board? What about outside board members?
- Officers/managers
Who are the officers and managers?
- Meetings
What constitutes a quorum for meetings?
- New equity issues
What are the restrictions on new equity issues (e.g., antidilution aspects, pre-emptive rights and tag-along provisions)?
- Ownership buyouts
How are ownership buyouts handled (e.g., a shotgun-clause approach versus a voluntary-sale approach)?
- Resolution of disputes
How are disputes to be resolved among shareholders (e.g., an arbitration clause)?
- Sale of shares
How are share sales handled (e.g., first right of refusal)?
- Obligations and commitments
What are a shareholder’s obligations and commitments (e.g., conflict of interest or commitment, full-time or …)?
- Shareholders’ rights
What are shareholders’ rights (e.g., what information, financial statements, or reports can shareholders access)?
- Death/incapacity
What happens in the event of death/incapacity?
- Valuation
How is a share valuation determined (e.g., to buy out an estate in the event of death)?
- Insurance requirements
Is life insurance required (e.g., funding for purchase of shares from estate or for key person insurance)?
- Operating guidelines
What are the operating guidelines or restrictions (e.g., budget approvals, spending limits banking, etc.)?
- Decisions and approval
What types of decisions require unanimous board and/or unanimous shareholder approval?
- Compensation issues
What are the compensation policies (e.g., remuneration of officers and directors, dividend policies)?
- Required agreements
Are other agreements required as well (e.g., management contracts, confidentiality agreements, patent rights)?
- Shareholder restrictions
Should there be any restrictions on shareholders with respect to competing interests?
- Business dissolutions
What could trigger the dissolution of the business?
- Liability exposure
What is the liability exposure, and is there any corporate indemnification (and insurance)?
- Advisers
Who are the company’s professional advisers (e.g., legal, audit, etc.)?
- Financial obligations
Are there any financial obligations by shareholders (e.g., bank guarantees, shareholder loans)?
Source: Michael C. Volker (mikevolker.com) Michael writes articles that are meant to be introductory in nature to help the budding high-technology entrepreneur and student. Contact him at his website or by email at mike@volker.org.
