What Should a Shareholders Agreement Include

When starting a new business with a partner or with multiple partners, it is essential to have a shareholders agreement in place. A shareholders agreement is a legal document that outlines the terms and conditions of the relationship between the shareholders in a company. It is an important document that helps to avoid misunderstandings and disagreements that can arise between shareholders.

A shareholders agreement should include the following key elements:

Ownership: The agreement should specify the percentage of ownership and the number of shares owned by each shareholder. This is critical to establish a clear understanding of each shareholder`s stake in the company.

Voting rights: The agreement should clearly define the voting rights of each shareholder. This includes the number of votes each shareholder has, how voting is conducted, and what constitutes a majority decision. It is also important to specify the quorum required for voting.

Board of Directors: The agreement should outline the composition of the board of directors, their powers, and responsibilities. It is essential to specify the number of board members and how they are appointed and removed. The agreement should also detail the decision-making process of the board.

Transfer of shares: The agreement should specify the process for the transfer of shares between shareholders. This includes the right of first refusal, which gives existing shareholders the right to purchase the shares of any shareholder who wishes to sell before they can be sold to a third party.

Dividend policy: The agreement should establish the company`s dividend policy, including the timing and method of payment.

Confidentiality: The agreement should include a confidentiality clause, which outlines the restrictions on the disclosure of confidential information.

Dispute resolution: The agreement should specify the process for resolving disputes between shareholders. This can include mediation, arbitration, or litigation.

Termination: The agreement should outline the circumstances under which the agreement can be terminated and the process for doing so.

It is essential to have a shareholders agreement in place to protect the interests of all shareholders and to ensure the smooth running of the company. The agreement should be drafted by a legal professional experienced in corporate law and should be reviewed periodically to ensure that it remains relevant and up-to-date. With a well-drafted shareholders agreement, business partners can focus on building a successful enterprise without worrying about legal disputes.