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Shareholders' Agreement

Definition - What does Shareholders' Agreement mean?

A shareholders' agreement is a contract that stipulates obligations, rights, and protections between shareholders. This contract typically outlines agreements pertaining to company stock, shareholder protection, firm leadership and management.

Divestopedia explains Shareholders' Agreement

Though a shareholders' agreement is written to protect all shareholders', it is usually more important to minority shareholders. This is because it helps outline the majority shareholders' rights to protect against abuse of power and give minority shareholders' more of a voice.

Additionally, this agreement can help protect the firm and the interests of continuing shareholders should new management enter the organization. In the case of selling a firm, a shareholders' agreement is important because it can determine dividend information and pricing mandates for company stock. Overall, this agreement is used to protect the firm's shareholders and their interests.

Issues that are covered by a shareholders' agreement typically include:

  • Implementation of agreement and how the shareholders will be governed;

  • Directors and officers of the corporation;

  • Dealing with shareholder matters;

  • Management of the corporation by the directors and specific limitation on authority;

  • Financing of the corporation;

  • Corporate distributions and payments of shareholders or designated representatives;

  • General restriction on transfer of shares and allotment of additional shares;

  • Rights of minority shareholders;
  • Valuation of shares;

  • Dealing with the death, disability, bankruptcy or termination of a shareholder.

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