A shareholder agreement is an agreement among the shareholders of a corporation setting out how the company should be operated. The shareholder agreement should detail the rights and responsibilities of the shareholders as well as their obligations. A shareholder agreement also contains information on the regulation of the shareholders’ relationship with each other, voting rights, the management of the company and control. In addition a shareholder agreement typically provides how ownership of the corporate is allocated among the of shareholders, what if any privileges and protection the shareholders have from liability for actions of the corporation.
A properly drafted shareholder agreement is critical to ensure that all shareholders are treated fairly and that their rights are protected. Often shareholder agreements will be drafted to protect the interests of minority shareholders. In particular a shareholder agreement may specify the mechanism to determine the price of the shares of the corporation. Likewise, a shareholder agreement may including provisions for valuing of the shares and the corporation.
Further, a shareholder agreement often will set out the requirements for someone to become a shareholder of the corporation and may contain restrictions on who may become a shareholder of the corporation. Finally, a shareholder agreements can include restrictions on the transfer of stock of the corporation and other mechanism to protect the interests of minority shareholders. In the event of litigation among shareholders, a properly drafted shareholder agreement can be a critical tool for protecting the interests of minority shareholders.