What Is a Shareholder Agreement?
A shareholder agreement is a contract between the shareholders and the corporation. It explains how the company operates and sets clear rights and responsibilities for each shareholder. The main goal is protection. A shareholder agreement keeps the company stable while also looking out for shareholders’ investments.
These agreements are most common in private or closely held companies, where there’s less built-in oversight. Public companies lean on securities laws and corporate governance rules instead, so they rarely use separate shareholder agreements. A typical shareholder agreement covers:
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Voting rights and major decisions
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How shares can be bought or sold
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How board members are appointed
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How the agreement works with the company’s articles and bylaws
Altogether, it serves as both a guide and a protection. It helps define how ownership and management should work, while keeping the interests of the company and its shareholders aligned.
When Should I Write a Shareholder Agreement?
The best time to put a shareholder agreement in place is at the very start of the business. Ideally, you draft it when the company is formed or incorporated. Doing this early gets everyone aligned right away. Shareholders know their rights, their responsibilities, and how decisions will be made.
Issues around ownership or management can quickly grow into expensive conflicts if nothing formal is in place. A written framework helps keep these situations contained and prevents them from defaulting to state business-litigation rules.
This becomes even more important in companies with a 50/50 split. Equal ownership can create a deadlock if shareholders can’t agree. A shareholder agreement sets out how to handle those situations so the business can keep moving forward.
Agreements Save You in Court
In Ritchie v. Rupe, a minority shareholder tried to leave the company, but the majority blocked the sale. The court ruled there was no “oppression” claim available for a minority shareholder and refused to force a buyout. With no shareholder agreement in place, the shareholder had no options. A clear agreement with buy-sell rules could have protected minority rights and helped prevent the dispute from reaching court.
Can I Write My Own Shareholder Agreement?
Yes, you can write your own shareholder agreement, and this often works for small businesses or startups. Many owners begin with a template to cover the basics. To be valid, a shareholder agreement must:
- Be written and signed by all shareholders
- Use clear language to avoid confusion or disputes
Even if you draft it yourself, it’s wise to have a lawyer review the document. A legal check helps make sure it will hold up if challenged. As the company grows, so do the risks. Larger or more complex businesses should work with a lawyer from the start to make sure the agreement protects everyone involved.
A shareholder agreement works best alongside a business plan. The plan sets out your goals and strategy, while the agreement outlines how shareholders will support and manage them. Having both in place keeps your business direction clear and your team aligned.
What Does a Shareholder Agreement Include?
A shareholder agreement typically covers a wide range of topics. Each section builds on the last to create a clear framework for ownership, management, and protection of shareholder rights.
- Basic ownership details record the number of shares issued, the issue date, and each shareholder’s ownership percentage.
- Rights and responsibilities set the rules for voting, meetings, dividends, and access to company records.
- Management and governance explain how directors are appointed, what roles officers play, and how major decisions are made.
- Valuation and profit distribution define how shares are valued—through formulas, annual recalculations, or outside experts—and outline dividend and profit policies.
- Transfer restrictions include rights of first refusal, tag-along rights, and shotgun clauses, along with rules for events like death or incapacity of a shareholder.
- Raising capital outlines how new funds can be brought in, such as through issuing new shares or arranging shareholder loans.
- Minority protections provide safeguards like unanimous approval for major changes or tag-along rights in a sale.
- Optional clauses may add non-compete and non-solicitation provisions, as well as a deed of adherence to bind new shareholders to the same terms.
- Dispute resolution usually requires mediation or arbitration before court action, giving shareholders a structured way to settle disagreements.
Together, these terms set out the rules for ownership, management, and conflict handling, making sure the company has a framework to follow as it grows.
Does a Shareholder Agreement Need to Be Notarized?
In most states, a shareholder agreement doesn’t need to be notarized. A written document signed by all shareholders is usually enough to make it valid.
Still, some businesses choose to notarize or add witnesses. It’s a simple step that makes the signatures more credible, shows everyone agreed willingly, and makes the agreement harder to dispute. A notary acknowledgement adds that extra layer of confirmation. In some cases, organizations or regulatory bodies may require notarization. Keeping to those rules makes it harder for anyone to question the agreement later.
Shareholder Agreement Sample
The sample below will give you a good idea of how a shareholders’ agreement is structured. When ready, you can download a shareholder agreement template in PDF or Word format.
