A shareholders' agreement, also called a stockholders agreement, is an arrangement among a company's shareholders that describes how the company should be operated and outlines shareholders' rights and obligations. The agreement also includes information on the management of the company and privileges and protection of shareholders.

The Basics of a Shareholders' Agreement

The shareholders' agreement is intended to make sure that shareholders are treated fairly and that their rights are protected.

The agreement includes sections outlining the fair and legitimate pricing of shares (particularly when sold). It also allows shareholders to make decisions about what outside parties may become future shareholders and provides safeguards for minority positions.

A shareholders agreement includes a date, often the number of shares issued, a capitalization (or cap) table, outlining shareholders and their percentage of company ownership, any restrictions on transferring shares, pre-emptive rights for current shareholders to purchase shares (in the event of a new issue to maintain their percentage of ownership), and details on payments in the event of a company sale.

Shareholder agreements differ from company bylaws. While bylaws are mandatory and outline the governing of the companys operations, a shareholder agreement is optional. This document is often by and for shareholders, outlining certain rights and obligations. It can be most helpful when a corporation has a small number of active shareholders.

KEY TAKEAWAYS

1) A shareholders' agreement is an arrangement among a company's shareholders that describes how the company should be operated and outlines shareholders' rights and obligations.

2) The shareholders' agreement is intended to make sure that shareholders are treated fairly and that their rights are protected.

3) It also allows shareholders to make decisions about what outside parties may become future shareholders and provides safeguards for minority positions.