A shareholders’ agreement sets out rights and obligations of the shareholders of a company and permits shareholders to participate in managing certain affairs of the Company.
Common provisions of a Shareholder Agreement
Shareholders’ agreements are drafted with consideration to the type of business, the corporate structure and shareholder needs of a company, however typically the following clauses will be provided for in the agreement:
- Agreement on Corporate Matters
- Restrictions on Share Transfers
- Transfer of Interests on Death
- Buy/sell Rights
- Shareholder Default – Events and Remedies
- Non-competition and Confidentiality
- Dispute Resolution Mechanism
Why your company should have a Shareholders’ Agreement
The provisions of the shareholders’ agreement that set out the rights and obligations of shareholders assist shareholders in avoiding conflict amongst themselves. Further, in the case there is a dispute among shareholders, the agreement will set out the process to resolve the dispute and mitigate complications which may arise from disputes. In turn, by entering into such an agreement, shareholders likely will save a great deal of legal fees and time, which may otherwise be spent on dispute resolution.
Specific advantages of a shareholders’ agreement include:
- Protection of shareholders when a shareholder dies or becomes disabled;
- Provision for defined exit procedures, in the case a shareholder wants to leave the company;
- Provision of mechanisms to remove a shareholder;
- Control of who may become a shareholder of the company, through imposing restrictions on the transfer of shares by a shareholder;
- Allows shareholders to exercise control over business and financial affairs, by setting out corporate actions that require unanimous approval of the shareholders; and
- Sets out the confidentiality obligations of the shareholders, in regard to the business of the company.
Conclusion A shareholders’ agreement tailored to a company’s business is an important tool for private companies and can save the company a great deal of time and money. If you would like to discuss implementing a shareholders’ agreement for your company, or have any further questions, please contact our firm at (604) 688-4900, or email one of our lawyers at firstname.lastname@example.org or email@example.com.