A shareholders’ agreement is a legal document that outlines the rights, responsibilities, and obligations of the shareholders of a company. This agreement is typically used by private companies and is designed to protect the interests of the shareholders and ensure that the company is run in a fair and efficient manner. In this article, we will discuss the key sections included in a shareholders’ agreement and provide an example.
Key Sections of a Shareholders’ Agreement
- Introduction and Background Information
The introduction section of a shareholders’ agreement typically outlines the purpose of the agreement and provides some background information about the company and its shareholders. This section may also include information about the business objectives and goals of the company, as well as any specific challenges or opportunities that the company may be facing.
- Share Ownership and Voting Rights
The share ownership and voting rights section of a shareholders’ agreement outlines the rights and obligations of the shareholders with respect to the ownership and management of the company. This section typically includes information about the number and type of shares that each shareholder owns, as well as the voting rights and powers associated with those shares.
- Management and Board of Directors
The management and board of directors section of a shareholders’ agreement outlines the structure and responsibilities of the company’s management team and board of directors. This section typically includes information about the composition of the board of directors, the appointment and removal of directors, and the decision-making powers of the board.
- Dividends and Distributions
The dividends and distributions section of a shareholders’ agreement outlines the policies and procedures related to the payment of dividends and distributions to the shareholders. This section typically includes information about the timing and frequency of dividend payments, as well as the formula or method used to calculate dividend payments.
- Share Transfers and Restrictions
The share transfers and restrictions section of a shareholders’ agreement outlines the rules and procedures related to the transfer of shares between shareholders or to third parties. This section typically includes information about any restrictions or limitations on the transfer of shares, as well as the procedures and requirements for completing a share transfer.
- Dispute Resolution
The dispute resolution section of a shareholders’ agreement outlines the procedures and mechanisms for resolving disputes that may arise between the shareholders or between the shareholders and the company. This section typically includes information about the types of disputes that are covered by the agreement, as well as the procedures for resolving disputes through negotiation, mediation, or arbitration.
Example of a Shareholders’ Agreement
Let’s take a look at an example of a shareholders’ agreement to see how these key sections are included in the document.
Introduction and Background Information
This agreement is entered into by and between the shareholders of XYZ Company, a Delaware corporation. The purpose of this agreement is to establish the rights and obligations of the shareholders with respect to the ownership and management of the company, and to provide for the fair and efficient operation of the business.
Share Ownership and Voting Rights
The shareholders of XYZ Company are listed below, along with the number and type of shares that each shareholder owns:
- John Smith: 1,000 common shares
- Jane Doe: 1,000 common shares
- Bob Johnson: 500 preferred shares
Each common share is entitled to one vote, and each preferred share is entitled to two votes.
Management and Board of Directors
The board of directors of XYZ Company shall consist of five members, as follows:
- John Smith
- Jane Doe
- Bob Johnson
- Sarah Lee
- Tom Brown
The board of directors shall be responsible for the overall management and direction of the company, and shall have the power to make all decisions and take all actions necessary to carry out the business of the company.