Shareholder Agreement Information
A Shareholder Agreement, sometimes referred to as a Stockholder Agreement, is a document used to specify the rights and regulations of shareholders in a corporation. It encompasses information such as shareholder details, management decisions, share valuation and information, and more.
Who Should Use a Shareholder Agreement?
You should use a Shareholder Agreement if you, along with other parties, will be entering into a business relationship based on owning shares in a corporation. In a Shareholder Agreement, you can name shareholders, directors, and officers of the company.
Parties in a Shareholder Agreement
Shareholders: The shareholders in your Shareholder Agreement are the individuals who own shares in the company. They may own equal shares or varied percentages. Shares are generally classified as one of two types: A, which are voting shares, and B, which are non-voting shares.
Shareholders may either be individuals or corporations, and it is recommended that all parties participate in a Shareholder Agreement.
Directors: A director in a corporation is someone who implements the agreed upon company policies. Directors are elected or appointed by the shareholders. Generally, directors make most of the management decisions in the company, but their authority can be limited depending on the preferences of the shareholders.
Officers: Officers in a corporation form the hierarchy of the company. Positions generally include a president, vice president, treasurer, and a secretary, but you may name other officers if you choose. Officers do not necessarily own shares in the business.
Limitations in a Shareholder Agreement
Shareholders may wish to limit the amount of decision making power that other parties, such as directors, have over the company. This is generally so that any major financial decisions pass through the shareholders of the company before being confirmed.
Shareholders can limit directors in some of the following ways:
- Prohibiting the company from participating in certain types of business.
- Restricting the corporation to a specific business.
- Preventing the company from providing financial assistance to anyone within the corporation.
- Having shareholders select a bank or auditor.
- Maintaining control over corporate expenditures that go above a certain amount.
- Preventing the company from disposing of assets of a certain value.
Shareholders may also choose to place share-specific regulations, such as:
- Redemption of existing shares.
- Issuance of new shares.
- The issuance of shares for non-monetary consideration.
- Whether shareholders are prohibited from selling shares.
- Who has first rights over newly issued shares.
- How shares are valued and when.
- How and when dividends will be paid.
Non-Compete and Non-Solicitation Clauses in a Shareholder Agreement
Shareholders may choose to include non-compete or non-solicitation clauses within their Shareholder Agreement.
A non-compete clause serves to prevent shareholders from competing with the corporation both while they are a part of it, and for a length of time afterward. It protects the corporation by ensuring that shareholders will not attempt to attract clients or customers away from the company.
A non-solicitation clause is what prevents current or former shareholders from encouraging other shareholders, officers, or directors to leave the company for a certain period of time. It serves to ensure that current employees aren't induced to leave the corporation by an owner.
Documents Related to a Shareholder Agreement: