Duhaime's Law Dictionary

Shareholder agreement Definition:

A contract between the shareholders of the company and the company itself, in which certain things which would otherwise be the purview of the board of directors, are predetermined.

Related Terms: Share, Stock, Shareholder

Also referred to as "unanimous shareholder(s) agreement" or, as some judges have taken to calling them, "USAs".

A shareholders agreement is of significant assistance in controlling a corporation.

For example, a shareholder might be allowed to manage the company, instead of a board of directors.

The shareholder agreement will also, typically, control inflows to the company (purchase of shares), how profits are to be distributed, dispute resolution and what to do if a shareholder dies.

Contrary to the constitution of a corporation, a shareholders agreement is not a matter of public record.

In any event, corporate constitutional documents are usually susceptible to amendment but a shareholders agreement requires the unanimous consent of all shareholders with signed.

They are very flexible documents. It is difficult to enumerate all of the possible areas shareholders may want to from a in a shareholders agreement but here are some of them:

  • If one of the shareholders a competing business, the activity can be controlled, and even manipulated as regards to others, by way of a shareholders agreement.
  • Providing for loans from shareholders; how they are repaid etc.
  • To protect or control what minority shareholders can do. For example, a shareholders agreement can provide that for certain specified decisions, a minority shareholder has to agree.
  • Strict controls on who sits on the board of directors, in terms of the number of directors and which shareholder gets to nominate the prospective directors.
  • Control over procedural matters such as written notice for meetings and quorum requirements.
  • Restricting the transfer of shares to other persons including what to do if a shareholder becomes disabled or dies.
  • Providing for life insurance on shareholders so the company has the funds necessary to buy shares from the deceased shareholder’s estate.
  • Providing for the catastrophic event of a clear disagreement between shareholders upon a fundamental decision, allowing one shareholder to buy out the other (for example, a shotgun clause) and the valuation of shares.

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