Introduction: Shareholder Agreements
After incorporating a business and organizing the corporate records, it is heavily recommended that the founders of a startup enter into an agreement that governs the relationship between the founders (or the broader group of shareholders). This agreement is referred to as the Shareholders Agreement. A shareholders agreement is often mistakenly referred to as a “partnership agreement” (which is an agreement amongst partners in a partnership).
Shareholders Agreements typically cover the following topics:
- Operation and management of the corporation
- Necessary approvals required to effect certain corporate actions
- Restrictions on transferring of shares
- General shareholder rights and protections
- Minority shareholder rights and protections
- Non-competition, non-solicitation and requirement to maintain confidentiality
In this Article, we will answer the following questions:
- What is the difference between a Shareholders Agreement and a Unanimous Shareholders Agreement (USA)?
- Are there different types of Shareholders Agreements used by startups at various stages?
- Does a Shareholders Agreement supersede the Articles of Incorporation or By-Laws of my corporation?
- What is meant by “corporate governance”?
- What types of matters typically require “special approval” in the Shareholders Agreement?
- What is the typical restriction on transferring shares? What are the scenarios that a shareholder transfers their shares?
- What is a buy-sell (shotgun) provision? What is an auction provision? When should these clauses be used?
- What are the possible minority rights/protections that can be included in a Shareholders Agreement?
- Should there ever be scenarios where a shareholder is forced to sell or “give up” their shares?
- How are the shares typically valued in a sale under the Shareholders Agreement?
- How is a Shareholders Agreement terminated?
- How do I get subsequent shareholders to agree to a form of a Unanimous Shareholders Agreement?