The Shareholders Agreement

An important part of launching a company is deciding who owns what. When you have multiple owners or when giving out shares to employees, you need to have a shareholder agreement in place.

This is not as well understood among entrepreneurs as you might hope. I have two clients who recently came to me to look at their proposed share structure because they had an inkling something was off. They were right. The share structure included non-voting shares – that’s a non-starter when it comes to raising money. After all, who is going to buy non-voting shares in a company?

The basics of a shareholder agreement and corporate governance

For those who may not be entirely sure what a shareholder agreement is, let’s go over some basics. The shareholder agreement sets basic rules about how the company is governed. For instance:

• Who sits on the board?
• How are directors selected?
• When can shareholders sell their shares?
• Can shareholders be forced to sell their shares?
• Who has the authority to make certain kinds of major decisions for the company, such as changing the firm’s strategic direction?

The shareholders agreement is a vital document for a private company. After a company goes public, that company will be governed by securities regulations.

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