This is a simple shareholders’ agreement intended for use by small to medium sized growth companies.
This agreement sets out matters relating to the management of the company and the relationship between the shareholders (e.g. rights to appoint directors, matters requiring the approval of any investor-appointed directors, the provision of financial information, confidentiality provisions, etc). Consider whether a shareholders’ agreement is required – in some cases a shareholders’ agreement will not be needed as the basic requirements relating to the company can be included in the constitution (e.g. pre-emptive rights and tag-along and drag-along rights).
This agreement is not intended for use by services companies where shareholders work in the business the focus is on returning regular income to those shareholder based on their contribution to the business – i.e. companies where the shareholders work in the business like partners in a professional services firm. Our template shareholders’ agreement – services companies is a better starting point for this type of company.
This agreement does not contain a mechanism to force the resolution of a dispute between shareholders, for example by requiring the business to be sold and the company wound up if there is a major dispute between shareholders. These types of provisions can be problematic in startup tech companies, as it can be very difficult to value or sell the business in the early stages. Also, it is often not in founders’ interests to give this right to a disgruntled shareholder, and we usually advise against giving such a right to incoming investors as it provides a forced liquidity option. However, while we think this is generally the best approach for this type of company, the downside is that if shareholders cannot resolve a dispute between themselves commercially, it may fester and the company may become dysfunctional and/or deadlocked.
Our services company template includes a major disputes wind up clause which may be included in this agreement if the parties determine that it is appropriate.
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