A contract stipulating terms for all matters concerning shareholders of the company.
A shareholders’ agreement, also known as a stockholders’ agreement, is an agreement entered into between all or some of the shareholders in a company. It allows regulating the relationship between the shareholders, the management of the company, ownership of the shares and the protection of the shareholders. It also governs the way in which the company is run as well as the privileges and protection of shareholders. It is intended to make sure that shareholders are treated fairly and that their rights are protected.
Unlike Company’s Bylaw, a shareholder agreement is optional. It is often written by and for shareholders, outlining certain rights and obligations. It is most helpful when a corporation has a small number of active shareholders. This agreement covers a wide range of clauses, including:
- the number of shares issued;
- a capitalisation table outlining the shareholders and their ownership in percentage;
- any restrictions on transferring shares;
- pre-emptive rights for current shareholders to purchase shares to maintain ownership percentages;
If you’re are looking to incorporate a company with two or more shareholders, then a shareholder agreement is a key consideration.
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Having your own standard terms will ensure that you’re able to provide the protection that your business needs and will enhance your reputation because customers will know what to expect from you and what happens if things go wrong.
To be effective, your standard terms must reflect the way you do business and protect your business from the specific risks you face. In contrast, we know that many businesses resort to relying on generic templates or re-purposing contracts obtained from competitors or previous employers. The problem is that these contracts often do not match up with your or your customers’ expectations and fail to adequately protect your business because important risks are not properly addressed. Poorly drafted or ill-suited contracts are often not worth the paper they are written on.