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What is a Shareholders’ Agreement?
A Shareholders’ Agreement, also known as a Founders’ Agreement, is a contract among founders of a company to regulate their rights as shareholders of the company.
In a Shareholders’ Agreement, the founders agree on a set of rules for the future transfer of shares and the level of consent required for making major decisions.
A Shareholders’ Agreement protects founders of a business by imposing restrictions on the transfer of issued shares, so that when one founder leaves, the sale of his shares is subject to other founders’ consent or the remaining founders have the chance to buy his shares before someone outside the company does.
Key points included
- Name, address, and shareholding of each investor;
- Restrictions on share transfer (including the option to include a tag-along clause and/or a drag-along clause);
- Level of consent required for key business decisions (e.g. adopting business plan, approving any transaction above a certain value);
- Level of consent required for fundamental decision (e.g. changes to share capital, winding up);
- Option to include a non-competition clause; and
- Confidentiality obligation.