Business Forms: Shareholders Agreement

What needs to be included in a Shareholders Agreement

This Shareholder Agreement is a short-form document which creates a contractual relationship between the shareholders of a private limited company.

This short Shareholder Agreement is designed for private companies in which each shareholder will own an equal share, so that there are no minority shareholders and no majority shareholders. Therefore there is no bias in the Agreement toward one particular kind of shareholder.

The main advantage of a Shareholder Agreement is that in addition to enforcing their shareholder rights against the company under its constitution it allows individual shareholders to enforce their rights under the agreement against each other, providing more protection from the possibility of being squeezed out of the management of the company.

This Shareholder Agreement is intended to be used by shareholders of a Company which is yet to be established or which has only recently been incorporated or purchased “off the shelf” at the time of its execution. It provides for the immediate issue of new shares and, if necessary, the increase of the company’s share capital.

This Shareholder Agreement is well suited to family companies. It sets out the basic elements of the shareholders’ relationship with each other and includes the right to first refusal (pre-emption) for the parties should one shareholder wish to sell their shares, helping to prevent outside investors from muscling in on the company. The more detailed clauses regarding management and share transfers as well as non-competition provisions are excluded from this Basic Shareholder Agreement. For more detailed pre-emption provisions, please see the long version agreements.

We recommend that you use one of the Simply-docs Articles of Association with this Shareholder Agreement. Where other Articles are incorporated caution should be taken for inconsistencies between the two documents. However, as a result of Clause 17 of this Shareholder’s Agreement will prevail over the Articles in the event of an inconsistency.

Also available from the Simply-docs site and listed below under Related Documents are separate clauses which are ready to be incorporated into this agreement if required, including a deadlock provision and a shareholder employee dismissal clause, for use where an employee shareholder is dismissed or resigns.

Square brackets are used to denote optional words and phrases or an either/or choice.

This Basic Shareholder Agreement – New Company includes the following clauses:

1. Definitions and Interpretation
2. The Business of the Company
3. Issues on Completion
4. Administration
5. Finance
6. Financial Information
7. Issue of Shares
8. Transfer of Shares
9. Valuation of Shares
10. Shareholder Meetings
11. Company Communications
12. Management
13. Reserved Matters
14. Dividend Policy
15. Winding Up
16. Confidentiality
17. Conflict with the Articles
18. Duration
19. Notices and Service
20. No Partnership or Agency
21. No Waiver
22. Severance
23. Entire Agreement
24. Non-Assignment
25. Further Assurance
26. Costs
27. Applicable Law and Jurisdiction

Schedule 1: Investment
Schedule 2: Articles of Association
Schedule 3: Loan Agreements

This Basic Shareholder Agreement – New Company is in open format. Either enter the requisite details in the highlighted fields or adjust the wording to suit your purposes.

Shareholders Agreement checklist

The Shareholders Agreement Checklist can be used to help you instruct lawyers, or to help you complete the relevant Agreement.

It lists a range of simple questions (66) to enable you to focus on the principal legal and commercial issues that need to be considered when drafting a Shareholder Agreement including, taxation, investment sums, instruments and timing, security, borrowing, new issues, pre-emption rights and procedures, class of shares, sale of shares and new participants.