What Is a Shareholder Agreement?
A shareholder agreement is a contract between shareholders and the corporation. It explains how the company operates and lays out each shareholder’s rights and responsibilities.
The main goal is protection. A shareholder agreement keeps the company stable while also looking out for shareholders’ investments. With clear rules in place, it cuts down on conflicts and makes sure everyone stays on the same page.
You’ll usually see a shareholders’ agreement in private or closely held companies. Public companies rely more on securities laws and corporate governance rules, so shareholder agreements are less common there.
When used, the agreement usually addresses major issues such as:
- Voting rights and decision-making
- Rules for buying or selling shares
- Appointing board members
- How it interacts with the company’s articles and bylaws
Altogether, it serves as both a guide and a safeguard. 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. That clarity makes it easier to build trust and work together.
It also helps prevent bigger problems later. Without an agreement, disputes over ownership or management can quickly grow into costly conflicts. A written framework keeps those issues under control. Without an agreement, any company disputes may be subject to default state laws pertaining to business litigation.
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 smart to have a lawyer review the document. A legal check helps ensure 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.
Pair It With a Business Plan
A shareholder agreement works best alongside a solid 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 elements shape how a company operates and how shareholders work with one another. A well-drafted shareholder agreement adds stability, and you can create one in a few steps with a Legal Templates shareholder agreement template, available in Word or PDF.
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.
