{"id":10209,"date":"2022-03-15T11:53:15","date_gmt":"2022-03-15T03:53:15","guid":{"rendered":"https:\/\/zegal.com\/shareholders-agreement\/"},"modified":"2024-12-27T17:46:30","modified_gmt":"2024-12-27T09:46:30","slug":"shareholders-agreement","status":"publish","type":"page","link":"https:\/\/zegal.com\/en-nz\/shareholders-agreement\/","title":{"rendered":"Shareholders Agreement"},"content":{"rendered":"\n<h2 class=\"wp-block-heading\" id=\"h-what-is-a-shareholders-agreement\"><span class=\"ez-toc-section\" id=\"What_is_a_shareholders_agreement\"><\/span>What is a shareholders agreement?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A Shareholders\u2019 Agreement, also known as a&nbsp;<a target=\"_blank\" href=\"https:\/\/zegal.com\/en-nz\/use-case\/set-up-a-founders-agreement\/\" rel=\"noreferrer noopener\">Founders\u2019 Agreement<\/a>, is a contract among the founders of a company to regulate their rights as shareholders of the company.<\/p>\n\n\n\n<p>In a Shareholders\u2019 Agreement, the founders agree on rules for the future transfer of shares and the level of consent required for making significant decisions.<\/p>\n\n\n\n<p>A Shareholders\u2019 Agreement protects the 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\u2019 consent, or the remaining founders have the chance to buy his shares before someone outside the company does.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-what-is-the-role-of-a-shareholders-agreement-template\"><span class=\"ez-toc-section\" id=\"What_is_the_role_of_a_Shareholders_Agreement_template\"><\/span>What is the role of a Shareholders Agreement template?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>A shareholder Agreement helps ensure that shareholders are treated fairly, and their rights are protected. It also helps in mitigating the risk of any conflicts that could occur in the future.<\/p>\n\n\n\n<p>The Shareholders\u2019 Agreement helps facilitate cooperation among the shareholders and ultimately aids in increasing the likelihood of a company becoming successful.<\/p>\n\n\n\n<p>When creating an agreement, some of the essential provisions to include in a shareholders agreement template are:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-name-address-and-shareholding-of-each-investor\"><span class=\"ez-toc-section\" id=\"Name_address_and_shareholding_of_each_investor\"><\/span>Name, address, and shareholding of each investor<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Personal and identifying details of the shareholders need to be mentioned along with their duties, responsibilities, and entitlements.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-detailed-governance-and-management-provisions\"><span class=\"ez-toc-section\" id=\"Detailed_governance_and_management_provisions\"><\/span>Detailed governance and management provisions<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A shareholders\u2019 agreement must have governance provisions about how the company will be managed. This can include details of how officers will be appointed, how official meetings such as board and shareholders meetings will operate, and how decision-making will occur among the shareholders.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-restrictions-on-share-transfer\"><span class=\"ez-toc-section\" id=\"Restrictions_on_share_transfer\"><\/span>Restrictions on share transfer<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>If any shareholder wants to leave the company or sell their shares, a Shareholders\u2019 Agreement provides measures to deal with share transfer provisions and restrictions.<\/p>\n\n\n\n<p>For instance, this can include clauses stating that the first right to purchase a shareholder\u2019s share will be given to existing shareholders and only then to third parties.<\/p>\n\n\n\n<p>Generally, there are two options:<\/p>\n\n\n\n<p><strong>Tag-along<\/strong><\/p>\n\n\n\n<p>The tag-along option is where a shareholder intends to sell their shares to a third-party buyer and will allow fellow shareholders to \u201ctag along\u201d with the sale, i.e., sell their own shares to the same third-party buyer on the same terms.<\/p>\n\n\n\n<p>This ensures that where a good deal is made by a shareholder (typically a majority shareholder), remaining shareholders (typically minority shareholders) can exit on the same terms.<\/p>\n\n\n\n<p><strong>Drag-along<\/strong><\/p>\n\n\n\n<p>The drag-alone option is where a majority shareholder (or a group of shareholders) intends to sell his shares to a third-party buyer.<\/p>\n\n\n\n<p>The drag-along provision gives them a right to force remaining shareholders (typically minority shareholders) to sell their shares to the same buyer on the same terms. This ensures that the third-party buyer can acquire the entire company, which could be crucial in negotiating the sale.<\/p>\n\n\n\n<p>The drag-along mechanism is a drastic measure, and minority shareholders must understand its implications before agreeing.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-confidentiality-obligations\"><span class=\"ez-toc-section\" id=\"Confidentiality_obligations\"><\/span>Confidentiality obligations<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>This prevents the disclosure of information regarding finance, sales, and the company\u2019s future plans, which might have serious negative consequences for an organisation\u2019s growth.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-founder-vesting\"><span class=\"ez-toc-section\" id=\"Founder_vesting\"><\/span>Founder vesting<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>It is very common in venture-backed&nbsp;<a target=\"_blank\" href=\"https:\/\/zegal.com\/en-nz\/starting-a-business\/\" rel=\"noreferrer noopener\">startups<\/a>&nbsp;for the founder to be treated differently from investors.<\/p>\n\n\n\n<p>A founder may agree to have \u2018vested shares\u2019, which means some or all of the founder\u2019s shares are not fully \u2018owned\u2019 by the founder until they have earned them (by working for a set period or hitting specific milestones).<\/p>\n\n\n\n<p>If a founder leaves a company, the unearned portion of their shares is either cancelled or returned to the company.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-deadlock-clause\"><span class=\"ez-toc-section\" id=\"Deadlock_clause\"><\/span>Deadlock clause<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A deadlock is when two or more shareholders cannot agree on certain key matters.<\/p>\n\n\n\n<p>Deadlock arises when shareholders\u2019 meetings are repeatedly inquorate (unable to proceed) because one group refuses to attend, votes down, or abstains from a resolution proposed by the other group. There must be provisions on how a deadlock will be resolved so the company can move forward.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-restrictive-covenants\"><span class=\"ez-toc-section\" id=\"Restrictive_covenants\"><\/span>Restrictive covenants<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Shareholders of a company are restricted from becoming a shareholder or competing or enticing away customers during the period they are shareholders and until a specified period after they cease to become one in a company by the restrictive covenant clause.&nbsp;<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-confidentiality-nda-clause\"><span class=\"ez-toc-section\" id=\"ConfidentialityNDA_clause\"><\/span>Confidentiality\/NDA clause<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Shareholders are likely to have access to valuable confidential information about the company.<\/p>\n\n\n\n<p>While the general law states that a person who has received information in confidence cannot use it to take an unfair advantage, most will not rely on this alone.<\/p>\n\n\n\n<p>A Shareholders\u2019 Agreement with confidentiality provisions, or an additional&nbsp;<a target=\"_blank\" href=\"https:\/\/zegal.com\/en-nz\/non-disclosure-agreement\/\" rel=\"noreferrer noopener\">NDA<\/a>, is best for a company to keep information confidential.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-a-dispute-resolution-mechanism\"><span class=\"ez-toc-section\" id=\"A_dispute_resolution_mechanism\"><\/span>A dispute resolution mechanism<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>When disputes arise, a Shareholders\u2019 Agreement can be a valuable tool to avoid and manage conflicts without reverting to extreme measures, like dissolving the company.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-investor-protection\"><span class=\"ez-toc-section\" id=\"Investor_protection\"><\/span>Investor protection<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Investors often require the shareholders to agree to specific provisions designed to protect their position. For example, they might require performance targets or a board seat on the board of directors. These provisions are often found in a Shareholders\u2019 Agreement.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-shareholder-s-death-or-default\"><span class=\"ez-toc-section\" id=\"Shareholders_death_or_default\"><\/span>Shareholder\u2019s death or default<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>A mandatory offer of shares upon the death or liquidation of a shareholder ensures that the company shares will remain in the hands of the remaining shareholders.<\/p>\n\n\n\n<p>In a Shareholders\u2019 Agreement, the fair value of the shares is determined by the company\u2019s auditors, or if the auditors decline instruction, by an independent accounting firm appointed by the company.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\" id=\"h-founder-vesting-1\"><span class=\"ez-toc-section\" id=\"Founder_vesting-2\"><\/span>Founder vesting<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Founder vesting is the concept that a founder\u2019s total ownership in a company is agreed to in the present and earned over time, not that much unlike a salary or other time-based compensation. If a founder leaves a company, the unearned portion of their ownership is cancelled or returned to the company.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-things-to-consider-when-you-set-up-a-shareholder-s-agreement\"><span class=\"ez-toc-section\" id=\"Things_to_consider_when_you_set_up_a_Shareholders_Agreement\"><\/span>Things to consider when you set up a Shareholder\u2019s Agreement<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Disputes:&nbsp;<\/strong>When disputes arise, there is often little in the general law that is of assistance. Sometimes, the only solution may be to dissolve the company, even if the company itself is successful. A shareholder\u2019s agreement can be a handy tool in avoiding and managing such disputes. It can include provisions setting out a mechanism for the parties to resolve disputes without needing draconian measures such as dissolving the company. Sometimes, to resolve a dispute, one or more shareholders may agree to sell their shares to the other shareholders. A shareholder\u2019s agreement will often include valuation provisions to ensure a precise valuation mechanism for those shares and avoid a further dispute regarding the price to be paid.<\/li>\n\n\n\n<li><strong>Investor protection:<\/strong>&nbsp;Investors are taking a risk on their investment as they may not recover the monies they invested into the company, so they often require the shareholders to agree on specific provisions designed to protect their position. For example, they might need performance targets for the company to meet within a given time. If those targets are not met, the investor has the ability to require certain actions to be taken or has the opportunity to take control of the company. These provisions are often found in a shareholder\u2019s agreement.<\/li>\n\n\n\n<li><strong>Confidentiality:&nbsp;<\/strong>The shareholders are likely to have access to valuable confidential information about the company by reason of their involvement in the business. A shareholder\u2019s agreement containing confidentiality provisions is the best way for a company to ensure that the shareholders will keep information about the agreement and about the company confidential during the life of the agreement and following its termination.<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-who-needs-a-shareholders-agreement\"><span class=\"ez-toc-section\" id=\"Who_needs_a_Shareholders_Agreement\"><\/span>Who needs a Shareholders\u2019 Agreement?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Ideally, all companies which have more than one shareholder should have a Shareholders\u2019 Agreement in place to regulate the business and have the responsibilities and rules for running the company pinned down in writing. Some benefits of having a shareholder\u2019s agreement are:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>A dispute resolution mechanism<\/strong><\/li>\n<\/ul>\n\n\n\n<p>When disputes arise, a Shareholders\u2019 Agreement can be a valuable tool to avoid and manage conflicts without reverting to extreme measures, like dissolving the company. It can be a tool to help treat sensitive topics with concrete pre-determined measurements.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Investor protection<\/strong><\/li>\n<\/ul>\n\n\n\n<p>Investors often require the shareholders to agree to specific provisions designed to protect their position. For example, they might require performance targets or a board seat on the board of directors. These provisions are often found in a Shareholders\u2019 Agreement.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-are-shareholders-agreements-legally-binding\"><span class=\"ez-toc-section\" id=\"Are_Shareholders_Agreements_legally_binding\"><\/span>Are Shareholders Agreements legally binding?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Shareholders\u2019 agreements are contracts. However, they must fulfil certain contractual requirements to be legally valid and binding.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-can-shareholders-agreements-be-reviewed-or-changed\"><span class=\"ez-toc-section\" id=\"Can_Shareholders_Agreements_be_reviewed_or_changed\"><\/span>Can Shareholders\u2019 Agreements be reviewed or changed?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Yes, while shareholder\u2019s agreement provides a solid foundation for businesses to move ahead, their terms can be reviewed and changed in the future, if all the parties onboard agree on the changes.<\/p>\n\n\n\n<p>The needs of companies, businesses and even investors are ever-changing, and it is only apt that the agreements are changed accordingly as well.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-how-to-remove-users-from-a-shareholders-agreement\"><span class=\"ez-toc-section\" id=\"How_to_remove_users_from_a_shareholders_agreement\"><\/span>How to remove users from a shareholders\u2019 agreement?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>&nbsp;Removing users from a shareholder agreement could be a lengthy process because it requires agreement from the majority shareholders. The removal can be done through the following steps:<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>1. Refer to the agreement of shareholders:<br><\/strong>Shareholders of the company are subject to terms and conditions set by the company. This means that the shareholder\u2019s agreement applies to all the shareholders. The shareholders of the company create the shareholder\u2019s agreement. Therefore, it ensures that all shareholders are represented fairly.&nbsp; Referring to this agreement is helpful and necessary to break off a contract with a shareholder. You may also refer to the arrangement of shareholders to identify reasons for the removal of the shareholder. It can also be a basis for negotiation.<\/li>\n\n\n\n<li><strong>2. Seek Legal Consultation<br><\/strong>To prevent legal problems, guidance should be sought. Caution should be employed especially before taking any action without shareholder permission. Legal consultation is an intrinsic part of the process because despite seeming simple, it holds many intricacies.<\/li>\n\n\n\n<li><strong>3. Claim majority amongst the shareholders<\/strong><br>A majority that is required for the removal of a shareholder needs to be overwhelming. This means you may not be able to remove a shareholder with a simple majority of fifty percent. You will require at least 75% of shareholders\u2019 favor for the removal. The shareholder should have less than 25% of the shareholders in their favor. The process of dismissing a shareholder can be done through a vote.<\/li>\n\n\n\n<li><strong>4. Negotiate for the majority:&nbsp;<\/strong><br>Sometimes you may not find a legal cause to remove a shareholder. In this case, the best option is to negotiate the majority in your favour. The majority opinion is indecisive in making any decision for the company. Therefore, if you do not already have the majority on your side negotiation is the best option to acquire it.&nbsp;<\/li>\n\n\n\n<li><strong>5. Create a non-compete agreement:<\/strong><br>Even after you have succeeded to secure the majority, you need to proceed with great caution. As the process can be complicated and troublesome, you would want to impose a non-compete agreement on the shareholders that will be departed. It is the final step in the removal of the shareholder. A non-compete agreement will ensure that the departing shareholder will not participate in a business that is a direct competition to your company. However, the non-compete agreement is only applicable for a set amount of days.&nbsp;<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-how-is-shareholders-agreement-different-from-articles-of-association\"><span class=\"ez-toc-section\" id=\"How_is_shareholders_agreement_different_from_Articles_of_Association\"><\/span>How is shareholders agreement different from Articles of Association?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>While an article of association is a public document, a shareholders\u2019 agreement is a private one that is signed between the shareholders of a company. Both are used to regulate the actions of a company and should be consistent with each other.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\" id=\"h-create-a-free-shareholders-agreement\"><span class=\"ez-toc-section\" id=\"Create_a_shareholders_agreement\"><\/span>Create a shareholders agreement<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Sign up to Zegal free, take a look around the app, then choose the best plan for your business.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>What is a shareholders agreement? A Shareholders\u2019 Agreement, also known as a&nbsp;Founders\u2019 Agreement, is a contract among the founders of a company to regulate their rights as shareholders of the company. In a Shareholders\u2019 Agreement, the founders agree on rules for the future transfer of shares and the level of consent required for making significant [&hellip;]<\/p>\n","protected":false},"author":174,"featured_media":134177,"parent":0,"menu_order":10,"comment_status":"closed","ping_status":"closed","template":[14138],"meta":{"_acf_changed":true,"_editorskit_title_hidden":false,"_editorskit_reading_time":4,"_editorskit_is_block_options_detached":false,"_editorskit_block_options_position":"{}","inline_featured_image":false,"footnotes":""},"usecases":[13716],"class_list":["post-10209","page","type-page","status-publish","has-post-thumbnail","hentry","template-company-shares","usecases-set-up-a-shareholders-agreement"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v20.8 (Yoast SEO v27.3) - https:\/\/yoast.com\/product\/yoast-seo-premium-wordpress\/ -->\n<title>Shareholders Agreement Template<\/title>\n<meta name=\"description\" content=\"A shareholders&#039; agreement establishes the rights, responsibilities, and procedures for managing the company. 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