A shareholder agreement, which is also sometimes called a stockholder agreement, is an understanding among shareholders that outlines how a company will operate. In addition, shareholder agreements govern shareholders’ rights and responsibilities. These agreements are crucial to ensuring that shareholders’ interests are protected and that they will receive fair treatment. In this article, we examine key elements of a shareholder agreement.
Stock Terms and Conditions
To ensure stockholders remain protected, a number of terms in shareholder agreements address the fair pricing of shares. For example, a shareholder agreement may detail:
- The number of shares to be issued
- A table that outlines the equity capitalization of the organization
- Pre-emptive rights of existing shareholders
- Restrictions on the transfer of shares
- The respective percentage of shareholder and company ownership
- The disbursement of a shareholder’s ownership upon death
Share Subscription Clause
A share subscription clause is an agreement to purchase shares from a company. It typically contains the terms under which the shareholder agrees to purchase the shares. Although some clauses contain more details than others, most usually include the class and number of shares to be issued, the amount each shareholder shall receive, and the deadline by which each shareholder is to receive this amount.
Shareholder Actions
Shareholders of a company play a hand in determining its senior management. Minority shareholders also nominate members of the board of directors. Finally, shareholders hold corporate leadership accountable by setting profit and revenue targets. Thus, the shareholder agreement covers these and similar matters.
Veto Power
Shareholder agreements also typically contain provisions that allow minority shareholders to veto the actions of majority shareholders. The purpose of this is to ensure parity between these groups. Accordingly, this type of provision specifies the types of business that can’t be conducted without the consent of shareholders with minority stakes in the company.
Deadlock Clause
A deadlock clause in a shareholder agreement is useful when there is an even number of shareholders and a vote is divided evenly. This part of the agreement establishes how to break such a tie to avoid the delay of crucial corporate business.
Exit Strategy
When a shareholder wants to sell his or her shares, it’s necessary to have a process in place by which this may be accomplished. Thus, this process is typically outlined in the shareholder agreement. Shareholder agreements often require a minimum holding period for shares, and they may also place limitations on who is permitted to purchase shares.
Contact a Florida Corporate and Business Law Attorney
At Gueronniere, P.A., we provide powerful legal representation to businesses throughout the state of Florida. Founded by lawyer Grace de la Gueronniere, our firm has the experience, resources, and knowledge necessary to fulfill your corporate and business law needs. So, if your business requires assistance in drafting shareholder agreements or other key business documents, please contact us to arrange a free consultation with our talented Florida corporate and business attorney.