Components of a Shareholders Agreement

By: Graff
The Shareholders Agreement is a document that is prepared during the period of company formation. It is a necessary agreement, as it highlights the structure of the company and underlines the basic working style and nature of operations of the company.

There are some really important points that must be included in a Shareholders Agreement. Exclusion of any of these components will render the agreement incomplete and ineffective. The first and foremost thing that needs to be mentioned is the structure of the company and the way in which the equity of the company will be divided amongst the shareholders. Issues like whether the agreement involves all shareholders or only a few should also be mentioned.

Details regarding the status of the shares in case a shareholder quits must also be mentioned. The Shareholders Agreement must include the names of the shareholders, board members and other officers and managers. It must also include the course of action required in case a shareholder wishes to pledge or hypothecate his shares. A Shareholders Agreement must contain the relevant steps to be taken in case of disputes. Detailed information about how ownership buyouts should be taken care of must also be given. The restriction on new equity issues is an important component of the Shareholders Agreement.

The details regarding the shareholder's obligations, commitments and rights deserves being mentioned prominently, being the Shareholders Agreement. The financial obligations of the shareholders, if any, should be mentioned. The way things are to be handled in case of death or handicap of a shareholder needs to be clearly defined. The veto power of the shareholders is of utmost importance, and hence should be clearly highlighted in the document. Decisions that would require a unanimous board and/or shareholder approval also must be listed. A list of other contracts, confidentiality agreements, patent rights, etc. deserves a special mention and is of utmost importance in a Shareholders Agreement.

All the above points are extremely important constituents of the shareholder agreement. Since it is an important document and sets the tone of the business operations, all the information must be complete, accurate and up to date.
Corporate Matters
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