What Should be Included in a Shareholders' Agreement?
A comprehensive shareholders' agreement typically includes the following key elements:
1. Share Ownership and Transfers This section outlines the number of shares each shareholder owns and the rules governing the transfer of shares. It can include pre-emption rights, which give existing shareholders the first right to buy new shares before they are offered to outside parties.
2. Voting Rights and Decision-Making It specifies how decisions will be made within the company, including the voting process and the types of decisions that require unanimous or majority approval. This ensures that all shareholders have a say in critical matters.
3. Roles and Responsibilities This section details the roles and responsibilities of each shareholder, particularly the founders and key executives. It can also outline the process for appointing and removing directors.
4. Dividends and Profit Distribution The agreement should specify how profits will be distributed among shareholders, including the timing and amount of dividends.
5. Exit Strategy An exit strategy is crucial for any entrepreneurial venture. The agreement should outline the process for selling the company, including the rights and obligations of shareholders in such an event. This section might also include drag-along and tag-along rights.