What Are Common Shareholder Concerns in Shareholder Agreements?
Shareholder agreements protect shareholders’ interests and rights. These contracts usually have many clauses outlining ownership, dispute resolution, and other rights or processes. They must be fair and clear to prevent losses and misunderstandings in the future.
Project data from ContractsCounsel, an online legal marketplace where clients connect with lawyers to draft and review contracts, has found that common shareholder concerns in shareholder agreements include share transfer restrictions and procedures, corporate governance and board powers, clarity, and dispute resolution.
Read the rest of this article to uncover the leading concerns for shareholder agreements and how having a legal review of the contract can help.
Note: Our research comes from ContractsCounsel’s real, anonymized shareholder agreement postings on its platform.
Share Transfer Restrictions and Procedures
Concern 1: When selling, transferring or even gifting shares, shareholders worry that there will be restrictions placed on these activities. They’re especially concerned if they require other shareholders’ approval for them.
How lawyers help: Corporate lawyers will check all transfer terms. There should be fair valuation. Rights for provisions, such as buy-back and first refusal, need to be transparent to prevent misunderstandings.
Corporate Governance and Board Powers
Concern 2: It’s common for shareholders to worry about how decisions will be made. They might want to ensure board authority is balanced.
How lawyers help: Lawyers closely look at all governance terms. They verify the voting rights and define the balance of power.
Clarity and Comprehensiveness of Terms
Concern 3: Shareholders worry about complex or unclear language in the agreement terms, as this can put responsibilities and rights in question.
How lawyers help: Lawyers check that the terms are consistent with corporate bylaws. They make adjustments to keep clauses enforceable and clear.
Dispute Resolution
Concern 4: If there are no dispute-resolution strategies in place, this can cause tensions and damage relationships.
How lawyers help: Lawyers review the arbitration and mediation provisions. Fair exit terms must also be included to prevent future disputes.
Impact of Resignation or Legal Issues
Concern 5: If a shareholder wants to resign, or they’re involved in litigation or other legal issues, they need clarity about how their rights will be affected.
How lawyers help: Lawyers check termination clauses for resignations. They protect shareholders by ensuring fair, reasonable treatment in all situations.
Understanding and Transparency
Concern 6: It’s common for shareholders to feel unsure about the agreement. They might wonder if the contract protects their interests.
How lawyers help: Lawyers make all terms easy to understand. They explain all responsibilities and rights to clear away confusion.
Key Takeaways
- Top shareholder concerns include transferring of shares, dispute resolution, and corporate governance.
- They want to avoid conflict by having the correct voting and buy-back provisions.
- A lawyer checks the contract protects shareholder ownership and control rights, while aligning it with corporate law.
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