Use our shareholder agreement to outline the relationship among shareholders in a company and describe how it will operate.
Updated October 27, 2023
Written by Ioana Gagiuc | Reviewed by Brooke Davis
A shareholder agreement (or a stockholders’ agreement) is a formal contract that sets out and explains the structure and nature of the shareholders’ relationship with the corporation and one another. Corporations find this type of agreement highly valuable because it helps create a strong foundation for the corporation.
The owners and directors of the company will interact with one another based on this agreement, so it needs to be strong, thorough, and well-thought-out. It’s also important to spend time on this document because it protects shareholders’ rights, prevents disputes, and regulates the transfer of shares.
A shareholder is any individual, institution, or company that owns at least one share of stock in a business. If the business does well, the individual or entity with stock ownership experiences financial gain. Their partial ownership of the business may give them some control over the company’s operations.
While shareholder rights will vary from company to company, some typical rights they have include:
A shareholder agreement is a legal document that describes how an organization should be operated and outlines shareholder rights and obligations. It memorializes the arrangement between the corporation’s shareholders, directors, and officers and helps manage the expectations of all parties.
It can reduce misconceptions, minimizing legal problems, lawsuits, and wasted time/money.
Here are the intended use cases of a shareholders’ agreement:
Here are some of the elements that are part of a shareholders’ agreement:
Shareholder agreements cover the scope of responsibilities the following parties will have:
This agreement may discuss whether a company’s shareholders are allowed to have employment as officers. It may establish certain limitations, like a requirement for the shareholders to be active in the business. This clarification can prevent disputes that may otherwise arise regarding shareholders’ pay rates or workloads.
It may cover non-competition and trade secrets clauses to protect the interests and the competitive advantages of the company.
Shareholders can refer to their agreement for guidelines on determining net income and loss. They can also see instructions for retaining net income for the business and distributing net income.
Sometimes, a company may benefit from a shareholder loan to expand its operations or improve existing business processes. A shareholder agreement outlines the terms and conditions under which a shareholder can loan money to a company.
While many businesses intend to exist long-term, circumstances may cause a corporation to dissolve. This document covers the conditions under which the corporation can dissolve, including the specific procedures shareholders must follow and the resulting distribution of assets.
This document regulates shares acquired for investment purposes, restrictions on transfers, and buy-sell agreements.
Shareholders may disagree on some issues as the business continues its operations. A pre-established agreement can guide simple resolutions that benefit the company and the disputing parties’ interests.
Some optional clauses that can cover shareholders’ rights include:
If you’re engaging in the sale and purchase of shares as a shareholder, you may need a stock certificate to prove you own your shares.
Even though this document is not required, there can be severe consequences for not having one available and in use:
List the company information, including the name and operating location. You can also list the date you’re drafting the agreement.
Name all the shareholders and indicate how many shares each has in the company.
Designate the duties of the board of directors. The board of directors will be able to perform specific acts on the corporation’s behalf, and each shareholder will have the right to sit on the company’s board.
Emphasize any limitations the board has. For example, you may not want the board to be able to voluntarily dissolve the company or issue additional shares without all the shareholders’ consent.
Specify whether distributions will be annually, quarterly, monthly, or at a more frequent interval.
If a shareholder wants to sell their shares, they must offer them at a fair price to other shareholders first. Designate the number of days the other shareholders will have to exercise their right of first refusal.
Specify cases in which the agreement will terminate. For example, you can record that this agreement will terminate if you have the written consent of all shareholders or all the shareholders pass away or become incapacitated.
Declare what state will govern the agreement in case disputes arise that require litigation.
Determine how disputes will be resolved, whether through litigation, arbitration, mediation, or mediation with binding arbitration.
Review this agreement with all the shareholders and have them sign it to put the document into effect.
Review our shareholders’ agreement template below and download it as a PDF or Word file:
