What is a Shareholders’ Agreement?
A Shareholders’ Agreement is a contract among founders of a company to regulate their rights as shareholders of the company.
To ensure that shareholders are treated fairly and that their rights are protected.
How to create a Shareholders’ Agreement
Easy to Use Legal Templates
Quickly and easily create any legal agreement for you or your team.
Straightforward pricing plans and bespoke packages built to simplify all your legal demands.
Vast Document Library
Zegal’s comprehensive collection of agreements means you always have what you need at your fingertips.
Shareholders’ Agreement FAQs
What is the role of a Shareholders’ Agreement?
To ensure that shareholders are treated fairly and that their rights are protected. When creating your agreement, some of the essential provisions to include are:
Name, address, and shareholding of each investor
Details about the holders of each share are essential.
Restrictions on share transfer
If any shareholder wants to leave the company, a Shareholders’ Agreement provides measures to deal with share transfer provisions and restrictions. Generally, there are two options:
When a shareholder intends to sell his shares to a third-party buyer, a tag-along option will allow fellow shareholders to “tag-along” with the sale, i.e., sell their own shares to the same third-party buyer on the same terms.
If a majority of shareholders (or a group of shareholders) intend to sell shares to a third-party buyer, 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.
Prevents the disclosure of information regarding finance, sales, and future plans of the company, which might have serious negative consequences for an organisation’s growth.
It is very common in venture backed startup for the founder to be treated differently from investors. A founder may agree to have ‘vested shares’ which effectively means some or all of the founder’s shares are not fully ‘owned’ by the founder until they have earned them (by working for a set period of time or hitting specific milestones). If a founder leaves a company, the unearned portion of their shares are either canceled or returned to the company.
Shareholder death clause
A mandatory clause that, upon the death or liquidation of a shareholder, ensures their shares remain in the company.
A deadlock is when two or two groups of shareholders cannot agree on certain key matters. Deadlock arises when shareholders’ meetings are repeatedly inquorate (not able to proceed) because one group refuses to attend, votes down, or abstains on a resolution proposed by the other group.
Do I need a Shareholders’ Agreement?
Ideally all companies with more than one shareholder should have a Shareholders’ Agreement to regulate the business between them. The agreement will include:
A dispute resolution mechanism
When disputes arise, a Shareholders’ Agreement can be a valuable tool to avoid and manage conflicts without reverting to extreme measures, like dissolving the company.
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’ Agreement.
Shareholders are likely to have access to valuable confidential information about the company. While the general law states that a person who has received information in confidence cannot use it to take an unfair advantage, most are not prepared to rely on this alone. A Shareholders’ Agreement with confidentiality provisions is the best way for a company to ensure information is kept confidential.
How to draft a Shareholders’ Agreement with Zegal
A mutual understanding between shareholders is essential for business growth.
Zegal’s tools and templates can create a well-drafted agreement to help your business thrive and reach its full potential.
The Zegal Template Library
Zegal's template library is a list of essential and premium business templates for your everyday legal needs.
Save money and time without sacrificing quality or missing vital legal requirements. Whether you're a startup or a larger enterprise, Zegal lets anyone create a legal agreement.
Let us take care of the legals so you can focus on running your business.
If you need more help, our "Talk to a Lawyer" feature gives you access to a qualified lawyer to get all the expert advice you need.
Try it for free today!
If you're creating a Shareholders’ Agreement, you may also be interested in the following documents:
Choose from 1000+ legal templates and draft contracts with ease and confidence.
Contract and document management made easy.