What Should Be Included In A Shareholder Agreement?

In this day and age of online accessibility, all you have to do is a quick Google search to find an array of sample shareholder agreements at your disposal. While it may seem much easier to pay a few dollars and use an online template for your agreement than to consult with a business attorney, using a template can often result in costly legal disputes down the road. A shareholder agreement should always be uniquely tailored to address the specific circumstances of your corporation and a one-size-fits-all template will almost certainly miss some key issues or provisions.

Businessman signing a contract

A shareholder agreement will differ from company to company though these agreements generally set guidelines for shareholder rights, management of the corporation, and legal recourse in the event of a dispute. The following are some provisions that can be key in a shareholder agreement:

Shareholder Rights

This part of the agreement sets out restrictions on regarding transactions with company shares. Specifically, such issues may be addressed:

  • Preemptive and conversion rights;
  • Restrictions on share transfer;
  • Transfers that are permitted;
  • Right to repurchase shares;
  • Rights of first refusal;
  • Minority shareholder protections.

Management of the Company

These provisions of a shareholder agreement give the shareholders a certain level of control over how the company is run and can include the following:

  • Shareholders rights to nominate and elect board members;
  • Requiring a voting super-majority for certain voting measures;
  • Shareholder access to information about the state of the corporation;
  • Procedural issues regarding board meetings;
  • Voting rights regarding mergers or acquisitions of another corporation
  • Observer rights for board meetings.

Competition Restrictions

Shareholders are often prohibited from being involved in certain ways with a competitor of the corporation, including engaging in recruiting employees from the corporation for the competitor. Such competition restrictions should be detailed in the shareholder agreement.

Dispute Resolution

This section of the agreement sets out guidelines for how a legal dispute involving shareholders should be resolved. It can include instructions such as:

  • How to resolve a deadlock regarding company matters;
  • Required arbitration;
  • Required mediation;
  • Required collaborative law;
  • Choice of law; and
  • Venue.

When a shareholder agreement is properly drafted, negotiated, and reviewed, it can be an extremely useful tool since it is much easier to devise and amend than the constitutional documents of the corporation. However, when a shareholder agreement falls short of the necessary provisions, disputes can arise.

An experienced San Jose business contracts attorney at Structure Law Group can help your corporation draft a new shareholder agreement or review existing agreements to ensure they are comprehensive and enforceable for the benefit or your company and its shareholders. In addition, if you have a shareholders dispute, a business litigation lawyer can help you to the most efficient resolution possible. Please do not hesitate to call our office for assistance with a tailored and thorough shareholder agreement today.