Shareholders' Agreement - Common Characteristics

Common Characteristics

Shareholders' agreements obviously vary enormously between different countries and different commercial fields. However, in a characteristic joint venture or business start-up, a shareholders' agreement would normally be expected to regulate the following matters:

• regulating the ownership and voting rights of the shares in the company, including
  • Lock-down provisions
  • restrictions on transferring shares, or granting security interests over shares
  • pre-emption rights and rights of first refusal in relation to any shares issued by the company (often called a buy-sell agreement)
  • "tag-along" and "drag-along" rights
  • minority protection provisions

• control and management of the company, which may include
  • power for certain shareholders to designate individual for election to the board of directors
  • imposing super-majority voting requirements for "reserved matters" which are of key importance to the parties
  • imposing requirements to provide shareholders with accounts or other information that they might not otherwise be entitled to by law

• making provision for the resolution of any future disputes between shareholders, including
  • deadlock provisions
  • dispute resolution provisions

• protecting the competitive interests of the company which may include
  • restrictions on a shareholder's ability to be involved in a competing business to the company
  • restrictions on a shareholder's ability to poach key employees of the company
  • key terms with suppliers or customers who are also shareholders

In addition, shareholders agreements will often make provision for the following:

• the nature and amount of initial contribution (whether capital contribution or other) to the company
• the proposed nature of the business
• how any future capital contributions or financing arrangements are to be made
• the governing law of the shareholders' agreement
• ethical practices or environmental practices
• allocation of key roles or responsibilities