Shareholders' Agreement Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Shareholders' Agreement, written in plain English, along with examples of how it is used.

What is Shareholders' Agreement?

(n) Shareholders agreement is an agreement between the shareholders of a corporation made for the purpose of getting a management position or directorship to any person .

History and Meaning of Shareholders' Agreement

A shareholders' agreement is a legal agreement between the shareholders of a company that outlines their respective rights and obligations. It is essentially a contract between the shareholders, and it can cover a wide range of issues related to the ownership, management, and operation of the company. Shareholders' agreements are commonly used in closely held companies where the shareholders have a significant say in how the company is run.

The purpose of a shareholders' agreement is to provide a framework for the relationship between the shareholders and to prevent disputes from arising. It will typically include provisions relating to the management of the company, the appointment of directors, the issuance of shares, the transfer of shares, and the resolution of disputes.

A shareholders' agreement can be particularly important in situations where there are minority shareholders who do not have significant control over the company. The agreement can provide them with protections and assurances that their rights will be respected. Additionally, it can be helpful for shareholders who are family members or friends who want to ensure that their relationship is protected if there are disagreements about how to run the company.

Examples of Shareholders' Agreement

  1. John, Mary, and Bob are equal shareholders in a small business. They enter into a shareholders' agreement that outlines how the company will be managed, including how the board of directors will be appointed and how major decisions will be made.

  2. A private equity firm invests in a startup and becomes a minority shareholder. They negotiate a shareholders' agreement that gives them certain rights, including the right to appoint a director to the board and the right to veto certain decisions.

  3. Two friends start a business and are 50/50 shareholders. They enter into a shareholders' agreement that outlines how they will split profits, how they will make major decisions, and what will happen if one of them wants to sell their shares.

Legal Terms Similar to Shareholders' Agreement

  1. Operating Agreement: An Operating Agreement is a similar legal document for limited liability companies (LLCs).
  2. Partnership Agreement: A Partnership Agreement is a similar legal document for partnerships.
  3. Bylaws: Bylaws are the rules that govern the management and operation of a corporation, and they can be similar in content to a shareholders' agreement.