Shareholders Agreement

Clients Rate Lawyers on our Platform 4.9/5 Stars
based on 3,401 reviews

Jump to Section

Need help with a Shareholders Agreement?

Post Project Now

Post Your Project (It's Free)

Get Bids to Compare

 Hire Your Lawyer

What is a Shareholders’ Agreement?

A shareholders’ agreement is a legally binding contract that outlines the regulations used to run a corporation. This agreement, also called a stockholders’ agreement or SHA, is used to protect the interests of each individual shareholder and establish a fair relationship within the company.

A shareholder agreement will include the rights and obligations of each shareholder, how the shares of the company are sold, how the company will run, and how decisions will be made.

To further understand what a shareholders’ agreement is, read this.

Who Needs a Shareholders’ Agreement?

When a corporation is created and more than one person will be investing money into the company, a shareholders’ agreement is essential. This document should be drafted and signed right when a corporation is formed to avoid any issues or confusion when setting up the company.

A shareholders’ agreement should be used whether a corporation has a lot of investors or just a couple. It should also be used even if the investors are family or close friends.

It can be easy to assume that if you go into business with people you know, you will not have disputes or issues. Even though this may be true, a shareholders’ agreement will protect everyone’s rights and interests and you will always have a clear, fair way to settle a dispute should one arise.

Even if a corporation has articles of incorporation that outline the company’s laws and policies, it is still a good idea to also draft a shareholders’ agreement for extra clarity and protection.

For more information on shareholders’ agreements for small businesses, read this article.

Important Clauses Found in Shareholders’ Agreements

Every shareholders’ agreement should be clear and detailed. Although each agreement will be custom tailored to each individual business, all agreements need to include key components. These components describe how the business will be run, how to resolve issues between shareholders and what each shareholder’s responsibilities and benefits are.

Shareholders’ agreements usually contain the following key provisions:

  • A preamble that lists the parties including the company name and all shareholders to be included in the agreement
  • The goals of the agreement
  • How shares will be bought, sold, or transferred (this includes both the optional and mandatory buying-back of shares by the company and what happens in the event of the death of a shareholder)
  • Protections for holders of less than 50% of shares
  • Dividends
  • A right of first refusal clause
  • Fair price for shares
  • How the company will be run including information about appointing or removing directors, board meetings, management information, banking arrangements and other important financial details
  • Dispute resolution procedures
Meet some lawyers on our platform

Michael M.

97 projects on CC
View Profile

Anand A.

23 projects on CC
View Profile

Daehoon P.

93 projects on CC
View Profile

Lawrence S.

17 projects on CC
View Profile

In addition to these provisions, a shareholders’ agreement should also contain the date, the number of shares issued, the percentage ownership of each shareholder, how votes are decided and how shares are created.

Other important clauses that can usually be found in a shareholders’ agreement include the following:

Clause 1: Director Structure

This clause will regulate the directors of a company. It will detail decision making policies, rights of shareholders to appoint or remove directors, and the powers of directors.

Clause 2: Buying and Selling Provisions

These are the rights and obligations of shareholders to buy or sell their shares. Some instances where shares may need to be bought or sold include insolvency, disability, death, or retirement. This is one of the most important parts of a shareholders’ agreement and should include a way to value shares.

Clause 3: Financing

This clause will include how shareholders contribute capital in the company and what happens if a shareholder can no longer contribute.

Example of Initial Funding Clause in Shareholders' Agreement

Initial contributions. Until the Initial Evaluation Date, each Shareholder shall be required (in accordance with any Contribution Notice which is served on it) to make capital contributions for the purposes and in the amounts specified in the existing Business Plan not exceeding, in aggregate, the value of the Initial Contribution Cap.

Reference :

Security Exchange Commission - Edgar Database, EX-10.2 3 dex102.htm SHAREHOLDERS AGREEMENT , Viewed May 20, 2021, < https://www.sec.gov/Archives/edgar/data/1156375/000119312506163790/dex102.htm >.

Clause 4: Restrictions on the Transfer of Shares

Restrictions on share transfers allows each shareholder to have some control over who they are doing business with. It is common to first require a director’s approval to transfer shares or to offer first rights to buy shares to existing shareholders.

Example of Restrictions on the Transfer of Shares Clause in Shareholders' Agreement

RESTRICTIONS ON DEALING WITH SHARES

(A) Transfer by a Shareholder of the legal and beneficial title to any Share, Convertible Share or Preference Share is only permitted in accordance with the provisions of clause 12 (Funding and performance tests), clause 17 (Voluntary transfers) or clause 18 (Transfer of Shares on default), or with the prior written consent of the other Shareholder.

(B) Notwithstanding the provisions set out above, no transfer of any Share shall be registered unless and until the transferor complies with the provisions of clause 9.5(D)(ii) (Directors’ interests and fiduciary duties).

(C) Save as set out above at clause 16(A) , no Disposal of any Share, Convertible Share or Preference Share or any legal or beneficial interest in any such share is permitted and the transfer of any Share, Convertible Share or Preference Share (other than in strict accordance with this agreement) shall not be registered.

Reference :

Security Exchange Commission - Edgar Database, EX-10.2 3 dex102.htm SHAREHOLDERS AGREEMENT , Viewed May 20, 2021, < https://www.sec.gov/Archives/edgar/data/1156375/000119312506163790/dex102.htm >.

Clause 5: Dispute Resolution

Dispute resolution is an important clause in a shareholders’ agreement. This lays out how to resolve any conflicts between shareholders as well as consequences for breaches of the agreement.

Clause 6: Confidentiality

Unless otherwise agreed upon, the terms of the shareholders’ agreement are normally confidential to the parties in the agreement.

Here is an article with samples on the Confidentiality Clause .

Clause 7: Shareholder and Director Meetings

Most corporations have scheduled meetings for their shareholders and directors. Laying out the meeting schedule within the agreement can be helpful for structure avoiding confusion in the future. This clause should also contain how meetings will be held with what procedures will be in place and voting procedures.

Clause 8: Protections for the Company

The shareholders’ agreement does not only serve to protect shareholders, but also the company. This clause will lay out rules to protect the company that could include limiting shareholders from being involved with competition or restrictions on shareholder’s interaction with customers.

Every shareholder agreement will be different based upon the needs and structure of the company. The most important thing to remember though is to make sure the agreement is as detailed and easy to understand as possible.

Click here to visit ContractsCounsel’s Contract Clauses Guide .

ContractsCounsel Shareholders Agreement Image

Image via Pexels by Pixabay

Are Shareholder’s Agreements Legally Binding?

Yes. A shareholders’ agreement, once signed, is a legally binding contract. Legally binding contracts require four elements: offer, acceptance, consideration, and the understanding that a contract is being formed.

In the scenario of a shareholders’ agreement, consideration is essential. Generally, consideration is met by the shareholder purchasing company shares. As long as there is an exchange of value, the element of consideration has been fulfilled.

How Do I Write a Shareholders’ Agreement?

If you are starting a corporation and are in need of a shareholder agreement, it is generally a good idea to consult with a corporate lawyer who specializes in these types of contracts .

If you are considering drafting your own shareholders agreement, consider these questions:

Question 1 : What issues will the agreement cover?

Question 2 : What are the interests of the shareholders?

Question 3 : What is the value of each shareholder?

Question 4 : Who will be making decisions for the company?

Question 5 : How will shareholders vote and how much will each vote weigh?

You will need to be sure that each shareholder is correctly named with their address and phone number. You should also include any officers of the company and who is going to be a managing shareholder.

Shareholder responsibilities, voting rights, and decision-making capabilities should be clearly and explicitly outlined in the agreement.

It is important to remember that unlike articles of incorporation which can be changed with a majority vote, a shareholders’ agreement requires all shareholders to agree to make any changes. It is crucial that this agreement is complete, all encompassing, and says exactly what you need it to say before being executed.

To look over an example of a shareholders’ agreement, click here.

Get Help with a Shareholders’ Agreement

Do you have questions about shareholders’ agreements and want to speak to an expert? Post a project today on ContractsCounsel and receive bids from lawyers who specialize in shareholders’ agreements.

How ContractsCounsel Works
Hiring a lawyer on ContractsCounsel is easy, transparent and affordable.
1. Post a Free Project
Complete our 4-step process to provide info on what you need done.
2. Get Bids to Review
Receive flat-fee bids from lawyers in our marketplace to compare.
3. Start Your Project
Securely pay to start working with the lawyer you select.

Meet some of our Shareholders Agreement Lawyers

Michael K. on ContractsCounsel
View Michael
5.0 (33)
Member Since:
June 28, 2021

Michael K.

Associate Counsel
Free Consultation
Get Free Proposal
Miami, FL
4 Yrs Experience
Licensed in FL
St. Thomas University School of Law

A business-oriented, proactive, and problem-solving corporate lawyer with in-house counsel experience, ensuring the legality of commercial transactions and contracts. Michael is adept in reviewing, drafting, negotiating, and generally overseeing policies, procedures, handbooks, corporate documents, and more importantly, contracts. He has a proven track record of helping lead domestic and international companies by ensuring they are functioning in complete compliance with local and international rules and regulations.

Erin F. on ContractsCounsel
View Erin
Member Since:
June 28, 2021

Erin F.

Attorney
Free Consultation
Get Free Proposal
Costa Mesa, CA
15 Yrs Experience
Licensed in NJ, NY, PA
Rutgers University School of Law (JD)

Businesses, Contracts, Operating Agreements, Corporate, Real Estate, Start-Ups, Cannabis

Drew B. on ContractsCounsel
View Drew
Member Since:
June 30, 2021

Drew B.

Managing Member
Free Consultation
Get Free Proposal
Cleveland, Ohio
24 Yrs Experience
Licensed in MO, OH
Saint Louis University

Drew is an entrepreneurial business attorney with over twenty years of corporate, compliance and litigation experience. Drew currently has his own firm where he focuses on providing outsourced general counsel and compliance services (including mergers & acquisitions, collections, capital raising, real estate, business litigation, commercial contracts and employment matters). Drew has deep experience counseling clients in healthcare, medical device, pharmaceuticals, information technology, manufacturing, and services.

Daniel R. on ContractsCounsel
View Daniel
Member Since:
July 1, 2021

Daniel R.

Managing Attorney
Free Consultation
Get Free Proposal
Chicago
9 Yrs Experience
Licensed in IL
Gonzaga School of Law

Daniel is an experienced corporate attorney and works closely with corporations, privately held companies, high-net worth individuals, family offices, start-ups and entrepreneurs. Daniel graduated from the Gonzaga University School of Law and is licensed to practice law in Illinois.

Roman V. on ContractsCounsel
View Roman
5.0 (1)
Member Since:
July 9, 2021

Roman V.

Trademark Attorney
Free Consultation
Get Free Proposal
Milwaukee, WI
8 Yrs Experience
Licensed in MD
Marquette University Law School

I'm an experienced trademark attorney and enjoy helping clients protect and grow their brand names through trademark registration and enforcement. I've worked with a wide variety of clients in different industries, including e-commerce, software as a service (SaaS), and consumer goods, to register trademarks for product names, logos, and slogans, both in the US and abroad.

Adam L. on ContractsCounsel
View Adam
Member Since:
July 6, 2021

Adam L.

Legal Counsel
Free Consultation
Get Free Proposal
London
13 Yrs Experience
Licensed in NY
University of London - Masters

12 Year PQE Lawyer with wide experience in sports, media and tech.

Justin A. on ContractsCounsel
View Justin
5.0 (8)
Member Since:
July 7, 2021

Justin A.

Partner
Free Consultation
Get Free Proposal
Seattle, WA
5 Yrs Experience
Licensed in NY, WA
The University of Chicago Law School

I am an entrepreneurial lawyer in the Seattle area dedicated to helping clients build and plan for the future. I earned my law degree from the University of Chicago and worked in a top global law firm. But I found advising real people on legal issues far more rewarding. Reach out to discuss how we can work together!

Find the best lawyer for your project

Browse Lawyers Now

Want to speak to someone?

Get in touch below and we will schedule a time to connect!

Request a call