SHAREHOLDERS AGREEMENT IN COMPANY DRAFTING

shareholders that sets forth how a company is organized, operated, and the rights and obligations of the shareholders. It also provides detailed information about the shares of stocks that were or will be issued. A shareholder agreement should be tailored to the specific needs of a company. However, a shareholder agreement should include certain key provisions, such as the rights and obligations of the corporation and shareholders, any restrictions on the transfer of shares, and rules outlining how a board of directors and corporate officers are chosen.

Shareholder funding/contributions

 The shareholders’ agreement should specify how the shareholders fund the acquisition of their shares.

Director appointments

 The shareholders’ agreement should specify their rights (if any) to appoint directors, the circumstances when they may lose that right (such as if their shareholding drops below a percentage) and provisions so that other shareholders may not remove another shareholder’s appointed director.

Management, obligations and information

 The next important area to cover is management and shareholder obligations. The shareholders’ agreement should specify how the company would be managed and what type of decisions require either a majority (50%), special (75%), unanimous (100%) or other approval.

Dividends and financing

 The shareholders’ agreement should specify the circumstances when dividends may be payable, such as whether or not past shareholders’ contributions have to be repaid first.

Transfers of shares

A shareholder may transfer their share if they no longer participate in the management/operations of the company, and if so, whether all or some of their shares are transferred and at what value.

 Exit strategy

 The shareholders’ agreement should also make clear and identify a general exit strategy, which could be a buy-out, listing, sale of business, as well as provide for what would happen if certain shareholders want to exit, and the value at which they may exit.

Default

 The shareholders’ agreement should set out a list of events of default and the consequences of default by a shareholder,

Deadlocks and disputes

 The shareholders’ agreement should set out the consequences if there is a deadlock or if a dispute cannot be resolved.

Easydrafting will help in drafting a suitable Shareholders Agreement.

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