- 1 Benefits of a shareholder agreement:
- 2 What should be included in a shareholder agreement?
- 2.1 Majority and minority shareholder’s identity
- 2.2 The difference among both categories
- 2.3 Why it matters
- 2.4 How to transfer shares
- 2.5 Who the directors are
- 2.6 If one dies, what happen
- 2.7 How shares are provided or sold to individuals
- 2.8 New shareholder policy
- 2.9 Company buyback policy
- 2.10 Policies regarding appointment of company officers and termination of their agreement
- 2.11 Dividend payments
- 2.12 Responsibilities and privileges of shareholders
- 2.13 Meeting schedules
- 3 Conclusion:
A shareholder agreement template is a legal agreement that explains the relationship among a corporation and its shareholders. This agreement serves as guide for any interaction between two parties. It highlights the responsibilities of the shareholder to the company and the privileges that the shareholders are to enjoy.
Moreover, in a shareholder agreement, the information is privileged and isn’t accessible to the people who are not stakeholders. This agreement doesn’t leave any confusion regarding how the corporation is going to run. It contains the details regarding the daily operation of the corporation as well as the procedure for handling any emergency.
Furthermore, a shareholder agreement identifies and gives ease in making future amendments to the company articles. The agreement should be thorough and include all possible scenarios to prevent any party from taking advantage of loopholes in the agreement. The agreement is also known as;
- Company shareholder agreement
- Agreement for a corporation’s shareholders
- Agreement for corporate shareholders
- Agreement for shareholders
- Stockholder’s agreement
- Agreement of corporation shareholders
A shareholder agreement is an important document for both the company and all its stakeholders. Let us discuss below the different uses of this agreement;
Company decision making
For shareholder entitlements and company policy, the shareholder’s agreement enables companies to have a separate document. Unlike an article of association, the agreement allows them to be kept some information private. Corporations, without changing their articles of association, may require shareholder agreements to make decisions and implement future changes.
In most companies, when it comes to decide direction and policies, disputes usually arise. The unilateral decision-making power is generally related to the majority shareholder. However, using this agreement, stakeholders in a company can modify this rule.
In a company, the level of influence a minority shareholder has is based on the shareholder agreement. The agreement can also have a policy states that some decisions need a unanimous vote. By having these laws, minority stakeholders have some degree of influence over company policies and decisions.
The agreement states that who is able to become a shareholder in the company. In smaller companies, such regulations are important in order to prevent unwanted persons from sabotaging the company unity.
Generally, when an individual dies, his/her shares are distributed as part of their assets. The agreement can intercept this regulation. It also prevents company shares from being inherited by individuals who aren’t appropriate to make decisions for the company.
Sometimes, shareholders have to leave the company. An agreement is also required to regulate any sale of shares whether by majority or minority shareholders. It could have a drag-along clause. If the majority shareholder is doing the same, this clause forces minority shareholders to sell their shares.
In addition, this agreement also has shotgun clause. In such a case, a shareholder can allow to buy the other shares at a particular price. Any shareholder that doesn’t accept the offer has to purchase the shares of the individual who created the offer at the same price. From becoming a prolonged legal battle, the agreement can prevent a shareholder’s potential exit.
If there is a disagreement between the shareholders, the shareholder agreement should include a dispute regulation guide. Such regulations are important. They are particularly important in companies where there the shareholders have equal rights.
The shareholder agreement should include the following details;
A majority shareholder has more than 50% of the shares in a company. While, a minority shareholder has less than 50% of the corporation. Therefore, they have no direct controlling stake. Any agreement should contain both sets of shareholders.
The difference among both categories
The agreement should clearly highlight the difference between the majority and minority shareholders about their responsibilities, rights, and influence over decision-making.
Why it matters
The agreement should demonstrate why this different is needed. It also states the responsibilities of both shareholder categories.
The agreement should include details about the transfer of shares. It should specify any restrictions on share transfers.
Who the directors are
To be in charge of the day-to-day running of the corporation, the shareholder has to appoint the people. These people are referred as directors. A shareholder can also select to serve as a director. The identity of all the directors should be stated in the agreement.
If one dies, what happen
The agreement should clearly state that what to do if a stakeholder dies. In the agreement, specify who is eligible to inherit their shares and any other essential decisions in case of a shareholder’s death.
A shareholder have to sell or provide some shares to another party. The agreement should give instructions that defines the limits of such activities.
The issuance of shares to new shareholders is covered by the document and any other details required for incoming shareholders.
Company buyback policy
The agreement should also contain the guidelines surrounding a share buyback by the company.
Policies regarding appointment of company officers and termination of their agreement
The agreement includes the details for the requirements of company officers and the termination of their contracts.
A corporation generally pays dividend. It is the sum of money to its shareholders periodically. The agreement explains the formula for calculating surpluses. It also defines how regularly shareholders will receive payment.
The agreement should cover all the requirements that a corporation expects its shareholders to fulfill.
The shareholder agreement should states that when and how often shareholders can meet along with the situations for calling an unplanned meeting.
In conclusion, a shareholder agreement template is a document used by both large and smaller corporations in guiding their decision-making. The agreement safeguards the interests of both the company and its shareholders. It also assists in keeping all parties accountable.