What is a shareholders agreement?
A shareholders agreement is an agreement between the shareholders of a company (and the company) intended to regulate their rights and obligations.
What is the difference between a shareholders agreement and a constitution?
A company constitution can be replaced by a 75% shareholder vote, where a shareholders agreement can only be replaced on agreement of all parties to the shareholders’ agreement.
What does a shareholders’ agreement cover?
A shareholders agreement usually covers:
- which shareholders will have the right to appoint a representative director
- weight of votes (whether each representative director will have one equal vote or whether their vote will be based on the percentage of the shares held by their appointing shareholder)
- drag along rights (the right of a majority shareholder to force minority shareholders to join in selling their shares to a third party)
- tag along rights (the right of minority shareholders to elect to join a sale where a majority shareholder is selling its shares to a third party)
- buy-out mechanisms (such as “Texas shoot-out clauses” or “Russian roulette clauses”)
- protection of confidential information and intellectual property
- non-compete and non-solicitation clauses
