Free Shareholders Agreement Template to Use for Your Business
Running a business is not just about driving sales but also about managing relationships, especially among shareholders.
A shareholder agreement serves as an essential tool in navigating this complex business landscape. This article highlights why you need one and how to create one using this free shareholder agreement guide.
What is a Shareholders Agreement?
A shareholder agreement is a written agreement among the shareholders of a corporation. It outlines each shareholder’s rights, responsibilities, and obligations and sets the rules around shares of the corporation. This legally binding document addresses crucial issues like the company’s management and the roles and responsibilities of the board of directors.
Why It’s Important to Have a Shareholders Agreement
A shareholder agreement is a crucial ingredient to any well-run corporation. It safeguards the interests of both majority and minority shareholders and provides a roadmap for dispute resolution, thus preventing future legal conflicts.
Without a shareholders’ agreement, the absence of clarity can lead to misunderstandings and conflicts among remaining shareholders, often leading to costly litigation or even the dissolution of the corporation. It’s like going on a road trip without a map – you might reach your destination, but the journey will likely be rife with unnecessary detours and roadblocks.
When to Use a Shareholder Agreement Template
The ideal time to put a shareholder agreement in place is at the very beginning of a corporation’s life when all shareholders are still on good terms and share a common vision for the business. However, it’s never too late to introduce a shareholder agreement.
Using an agreement template is a practical approach to crafting this important document. A template offers a comprehensive structure that ensures no crucial details are overlooked. However, the template should be tailored to the unique needs of your corporation, including factors like the number of shareholders, the corporation’s industry, and its future goals.
DISCLAIMER: We are not lawyers or a law firm and we do not provide legal, business or tax advice. We recommend you consult a lawyer or other appropriate professional before using any templates or agreements from this website.
What Should a Shareholders Agreement Include?
Like a well-prepared meal, a comprehensive shareholder agreement has several key ingredients to form a cohesive whole. Each part is crucial in outlining how the company operates. Below is a breakdown of these components.
Background & Shareholder Information
The foundation of a solid shareholder agreement is a detailed background and information section. This is where you list the shareholders, their contact information, and the number of shares they own. It’s not just a formality; it serves as vital information that helps set the stage for everything that follows.
Roles & Responsibilities
A well-functioning corporation is like a machine, with each part playing its specific role. The roles and responsibilities section outlines the duties of the shareholders, the board of directors, and other key positions within the company. It covers everything from attending shareholder meetings to deciding the company’s future direction.
Every business faces a variety of decisions that can significantly impact its operations. These decisions may include financial investments, acquisitions, selling assets, or other strategic moves. The shareholder agreement should define which decisions require majority approval, unanimous consent or can be made by individual shareholders– this ensures all shareholders are on the same page with how these key decisions are made.
The dividends section outlines how the company’s profits are distributed among shareholders. This section might include information on how often dividends are paid (quarterly, annually), the method of payment, and the procedures for re-investing dividends back into the business. It’s crucial to have these details agreed upon and documented to avoid any misunderstandings about how profits are shared among the shareholders.
The transferring of shares is a critical part of any shareholder agreement. This section outlines the rules for when and how a shareholder can sell their shares, to whom, and under what conditions.
It’s common for agreements to include pre-emptive rights, giving existing shareholders the right of first refusal to buy any outstanding capital stock another shareholder wishes to sell.
Like a well-crafted story, every business has an end—or a “dissolution” in corporate lingo. This section outlines the process to follow if the company ceases operations. It covers aspects like asset distribution, settlement of debts, and the final winding up of the company.
Although considering the end at the start may seem a bit pessimistic, addressing dissolution ensures that all shareholders buy into the process to prevent messy and costly legal disputes down the line.
The general terms section of a shareholder agreement is like the toolbox you keep in your house – filled with essential items you hope you never need but are glad to have when necessary. It includes key terms and provisions like confidentiality, non-compete agreements, and dispute resolution mechanisms. These elements are essential to cover your bases and ensure everyone is on the same page.
The final piece of the puzzle is the signatures. Each shareholder signifies their agreement to the terms outlined with their signature. This is not just a formality but a legal requirement that makes the contract enforceable. While ink signatures are traditional, e-signature solutions like Signaturely can save time, effort, and paper.
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Shareholders Agreement Template
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How to Write a Shareholders’ Agreement
A good place to start in crafting a stockholders’ agreement is by using a template. This provides you with a solid foundation, helping to ensure that no critical elements are missed.
Remember, every business is unique, so you’ll want to customize the template to suit your company’s specific needs. You can tweak elements like share valuation clauses, rights of other shareholders, and provisions regarding the board of directors. Be sure to involve all of the shareholders in this process for transparency and mutual agreement.
Once you’re satisfied with the content, review it with a legal professional to ensure it aligns with generally accepted accounting principles. Then, get it signed. With digital tools like Signaturely, you can sign your agreement quickly and securely.
FAQs About Shareholders’ Agreements
When navigating the world of shareholder agreements, questions often arise. Below are some of the most frequently asked questions about shareholder agreements.
Can I write my own shareholder agreement?
Yes, you can draft your own shareholder agreement; however, doing so without legal guidance could leave you vulnerable to potential pitfalls and oversights. Given the legal weight and complexities associated with these documents, it’s often beneficial to seek the expertise of a legal professional.
What is a shareholder agreement for an LLC?
An operating agreement outlines each LLC member’s roles, responsibilities, and financial stakes. This document also provides a framework for managing the LLC’s daily operations and outlines procedures for resolving disputes, transferring membership interest, and potentially dissolving the LLC.
Does a shareholder agreement need to be notarized?
While a shareholder agreement does not typically need to be notarized, it does need to be signed by all shareholders to become legally binding. This signing underscores the agreement’s legitimacy and indicates that all parties agree to the terms outlined.
What are the must-haves in a shareholder agreement?
A robust shareholders’ agreement usually includes sections detailing shareholder information, roles and responsibilities of shareholders, rules for transferring shares, procedures in the event of a shareholder’s death or departure, provisions for dissolution, and general terms like confidentiality and non-compete clauses.
How do you set up a shareholder agreement?
The process begins with a template, which provides the foundational structure for your document. From there, customize it to align with your business’s specifics, considering factors like the number of shareholders, types of shares, and company structure. All shareholders should be involved in this process to ensure transparency and mutual agreement.
What makes a shareholder agreement legally binding?
A shareholder agreement becomes legally binding once all other shareholders have signed it. It’s important to remember that each shareholder needs to read and understand the agreement thoroughly before signing. The signed document is a legal contract, ensuring all parties are held accountable to the terms outlined.
Who creates a shareholder agreement?
While a shareholder agreement is often a collective effort involving all shareholders, it usually requires guidance from a legal professional or resource.
What You Need to Remember About a Shareholder Agreement Template
A shareholder agreement template is your starting point. It’s crucial to customize it to reflect your unique business circumstances and ensure a legal professional reviews it. Remember—get all shareholders to sign the agreement. Digital solutions like Signaturely can streamline this process and ensure your agreement is securely stored.
Shareholder Agreement Template
- This Shareholders Agreement (hereinafter referred to as the “Agreement”) is entered into on ________________ (the “Effective Date”), by and between the following:
(collectively referred to as the “Shareholders”).
SHARES AND VALUATION
- The Shareholders agree that the initial share capital of the company will be $___________________
- The share capital will be divided into ___________________ shares with a par value of ___________________ each.
- The Shareholders agree that they may increase the share capital of the company from time to time in accordance with the terms of this Agreement.
- The Shareholders agree that a written notice will be sent to all the Shareholders ___________________ days prior to the meeting in cases of an annual shareholders meeting.
- The Shareholders agree that a written notice will be sent to all the Shareholders ___________________ days prior to the meeting in cases of a specific shareholders meeting.
- The Shareholders agree that the general assembly can make decisions only if the total shares represented at the meeting is or exceeds 51% as a quorum requirement.
- The Shareholders agree that in case the quorum meeting is not met, a new meeting will be held ___________________ weeks/months to cover the same agenda.
TRANSFER AND ISSUANCE OF SHARES
- The Shareholders agree that the transfer of shares is conditional upon the purchaser.
- The Shareholders further agree that in case of selling shares, the shareholder has to offer their shares to the existing shareholders prior to considering third parties.
- The Shareholders agree that a collective written consent is required prior the issuance or transfer of new shares of any class.
- The Shareholders agree that the company’s management will be headed by an executive board of at least ___________________ members elected by the board of directors.
- The Shareholders further agree that the management will make decisions in accordance with the Articles of Association and any other rules of procedure, if available.
- The Shareholders agree that the company will, at all times, keep complete accounting and other financial records in accordance with this Agreement.
- The Shareholders agree that the company will not have less than ________________ director.
- The Shareholders further agree that the director does not have to be a shareholder to this Agreement.
- In case of death of the director(s), the Shareholders agree to collectively appoint a new director by unanimous decision.
- The Shareholders agree that the initial directors are enlisted as follows:
- The Shareholders agree to appoint the following duties to the directors of the company
- The Shareholders agree that they will not be employed or financially interested in any business that revolves in or around the same or similar nature as the company of which they hold shares in.
- The Shareholders agree that the company will distribute profits in the form of dividends to their shareholders in proportion to their shares in the company.
- This agreement shall be applicable to any transaction made by the company.
- The Shareholders agree that this Agreement may be terminated upon an unanimous agreement of the Shareholders.
- The Shareholders further agree that this Agreement will be terminated in cases of dissolution, bankruptcy ________________, ________________ and ________________.
- The Shareholders agree that any amendments made to this Agreement must be in writing where they must be signed by the Shareholders to this Agreement.
- As such, any amendments made by the Shareholders will be applied to this Agreement.
- In an event where a provision of this Agreement is found to be void and/or unenforceable by a court of competent jurisdiction, then the provisions remaining will continue to be enforced.
- Any dispute and/or difference arising out of or related to this Agreement will be submitted to ________________ (Arbitration/mediation/negotiation) according to, and subject to the laws of ________________.
- This Agreement will be governed by and construed according to the laws of
- This Agreement is complete and with respect to the subject matter herein, supersedes all and any prior agreements, understandings, and conditions, expressed or implied, written or oral, of any nature with respect to the subject matter herein.
- The expressed terms control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms herein.
SIGNATURE AND DATE
- The Shareholders hereby agree to the terms and conditions set forth in this Agreement and such is demonstrated throughout their signatures below:
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