A shareholder agreement is a document involving multiple shareholders of a company, detailing the specific outcomes and actions that will be taken in the event of a shareholder leaving the company, whether voluntarily, involuntarily, or if the company ceases trading. What is a shareholder agreement? Name] [Shareholder2. Name] [Shareholder3. Name] [Shareholder4. Article 1 — Purpose of Agreement 1.
The Shareholders are entering into this Shareholder Agreement to provide for the management and control of the affairs of the Corporation, including management of the business, division of profits, disposition of shares, and distribution of assets on liquidation. Article 2 — Shares Subject to Agreement 2. The Shareholders listed above own the number of shares of common stock, and approximate percentage of company ownership, as listed below: Name Number of Shares Percentage of Ownership [Shareholder1.
Name] 2. The shares listed above constitute all of the issued and outstanding capital stock of the Corporation. The Corporation acknowledges receipt from each Shareholder of the full consideration for the respective shares listed above, and each Shareholder acknowledges receipt of certificates representing his or her shares. All of the shares listed above and any additional shares of the capital stock of the Corporation that may be acquired by the Shareholders in the future shall be subject to this Agreement.
Article 3 — Management and Control 3. Board of Directors. Subject to termination in accordance with this Agreement, each Shareholder to this Agreement will be a director of the Corporation. Authority of Directors. During the term of this Agreement, the directors will, when appropriate, perform the following acts: 3.
Cause an quarterly report to be sent to the Shareholders not later than 30 days after the close of the quarter year, such quarterly report will be used to identify and approve any distributions in accordance with this Agreement; 3. Cause the Corporation to maintain the books, records, and other documents required by California law; 3. Use best efforts to cause the business of the corporation in accordance with sound business practices.
Subject to the limitations in Section 3. Vice President. Limitations on actions of officers. The following actions shall not be made by any one Officer without the approval of all Officers of the Corporation: joint approval required actions. Approval of All Shareholders. Notwithstanding any contrary provisions in this Shareholder Agreement, the written consent of all of the Shareholders is required to approve the following actions: mergers or consolidations involving the Corporation; amendment or repeal of the Articles of Incorporation of the Corporation; issuance of shares of any class or other rights relating to the issuance of shares of the Corporation; transfer of all, or substantially all, the assets of the Corporation; amendment of this Shareholder Agreement; or voluntary dissolution of the Corporation.
Employment of Shareholders. Shareholders may be employed as officers of the Corporation, as long as they hold shares of stock of the Corporation, are active in its business, and, in a satisfactory manner, perform their duties and responsibilities as set forth in this Agreement, the Articles of Incorporation and the Bylaws of the Corporation.
The title, duties, and the other terms of employment, including the annual salary, will be memorialized in a separate document and must be both approved, and only may be subsequently altered, only by the unanimous written consent of the Shareholders.
Article 4 — Noncompetition and Trade Secrets 4. Trade Secrets. Each Shareholder acknowledges that the customer lists, trade secrets, processes, methods, and technical information of the Corporation and any other matters designated by the President or by the written consent of all Shareholders are valuable assets.
Unless he or she obtains the written consent of each of the other Shareholders, each Shareholder agrees never to disclose to any individual or organization, except in authorized connection with the business of the Corporation, any customer list, or any name on that list, or any trade secret, process, or other matter referred to in this paragraph while the Shareholder holds, or has the control of, any shares of the Corporation, or at any later time. Article 5 — Distributions of Income and Losses 5.
Determination of Net Income and Loss. The net profits or net losses of the Corporation for each fiscal year will be determined on an accrual basis in accordance with generally accepted principles of accounting. Retaining Net Income. Regular Distributions of Net Income. Subject to any retained earnings and to the statutory requirements related to corporate distributions, the net income of the Corporation may be distributed quarterly to the Shareholders in proportion to the number of shares of the Corporation owned by them.
Such distributions shall be approved by all Shareholders. Shareholders may elect to not take a distribution, but instead offer the moneys as a loan to the Corporation. Your document is ready! You will receive it in Word and PDF formats. You will be able to modify it. The Shareholders Agreement is intended to protect the rights and to ensure proper treatment of the Shareholders in a company.
In comparison to the company bylaws which is mandatory under the Companies Act, the Shareholder's Agreement is an optional agreement entered into between some or all of the Shareholders in a Company. Unlike company bylaws, the Shareholders Agreement is a private document and the contents of the same can be kept confidential. The Shareholders Agreement is binding only on the parties to the Agreement and it is a contractual arrangement between the parties.
A properly drafted Shareholders Agreement will help to maintain a healthy relationship between the parties. The Shareholders can enter into this Agreement at any time before or after the commencement of the Company.
This Agreement can be used for both Private and Public companies. It is better to cross-check the bylaws of the Company mentioned under the Articles of Association AoA before drafting this Agreement to avoid any disparity.
The changes to AoA can also be made after entering into this Agreement. The Parties to this Agreement can specify whether a new Party can become a Party to this Agreement or not. The voting support required to admit a new Party can also be specified under this Agreement. A First Refusal clause can be added to this Agreement. Under which the Shareholders will be restricted from selling their shares to an unrelated third-party non-party to this Agreement without giving an offer to purchase to other Parties to this Agreement.
A Drag-Along Rights clause can be added to this Agreement. The Drag-Along clause gives majority Shareholders pre-determined percentage of Shareholders who wish to sell their shares to an unrelated third-party, the right to force the remaining shareholders to sell their shares on the same terms. A Tag-Along Rights clause on the other hand provides "co-sale rights" to the Shareholders. Generally, this clause is used to protect the minority shareholders of the Company.
Thus if majority shareholders sell their stake, it gives the minority shareholder the right to join the transaction and sell their minority stake in the Company. An Anti-Dilution helps the Shareholders of the Company to maintain the size of their stake in the Company when and if additional Shares are offered.
In the absence of an Anti-Dilution clause, it may lead to a decline in ownership percentage and loss in value of Shares of existing Shareholders. This is used to protect the confidential information of the Agreement. If the Parties want to fix more complete provisions concerning the confidentiality obligation for instance: what should and should not be considered confidential information, for how long should they be kept confidential, etc.
The parties can include a Non-Compete Clause , under which the Parties to this Agreement will be restricted from competing with the Company for a particular period in a specific region. A Non-Solicit Clause can be added under this Agreement, under which parties will be barred from soliciting or recruiting the customers and employees of the Company for a particular period.
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