Shareholders agreement is a legal agreement between the shareholders of a company which helps establish a relation between the stakeholders and govern the operation of the company.
Key areas covered in the shareholders’ agreement are:
- Rights and obligations of the shareholders
- Rights and obligations during sales of shares of the company
- Rights and obligations of the company management
- Rights and obligations of the investor
Features of a good shareholders agreement
- Nomination of Directors etc.: The agreement may allocate the rights to certain stakeholders to be a director on board as well as decide the composition of the Board.
- Roles and obligations of each shareholder.
- Financing requirements, quorum requirements and veto rights.
- Representation & Warranties from the Company.
- Restrictions on transfer of shares (right of first refusal, right of first offer).
- Forced transfer of shares (tag-along rights, drag-along rights) and curtailing of further issue of shares.
- Defining Shareholding Threshold: There can be a minimum shareholding a party must have to enjoy the rights as under the Shareholding Agreement.
- Determining and allocating special rights to certain shareholders.