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Shareholders Agreement Key Terms

Shareholder agreements are written contracts that define the relationship between shareholders in a company. These agreements outline the rights, duties, and responsibilities of each shareholder, as well as the processes for decision-making, dispute resolution, and ownership transfer. While the terms of a shareholder agreement may vary depending on the specific needs of the company and its shareholders, there are several key terms that should be included in every such agreement.

1. Share ownership

The shareholder agreement should specify each shareholder`s ownership percentage in the company. This information is vital for determining the number of votes each shareholder has in decision-making, as well as the amount of dividends or profits they are entitled to receive.

2. Voting rights

The agreement should clearly outline the voting rights of each shareholder, including how they can exercise their voting rights, and the decisions that require a unanimous vote. These provisions ensure that decision-making within the company is fair and transparent.

3. Board of directors

If the company has a board of directors, the shareholder agreement should specify how the board is appointed and how they make decisions. This section should also outline the powers and responsibilities of the board, including the ability to hire and fire company executives.

4. Management roles

The agreement should specify the roles and responsibilities of each shareholder in the management of the company. This section should detail the powers and duties of the CEO, CFO, and other executives, and the process for making decisions.

5. Share transfers

The shareholder agreement should outline the process for selling or transferring shares between shareholders. This section should also specify any restrictions on share transfers, such as pre-emptive rights or restrictions on selling shares to third parties.

6. Dispute resolution

In the event of disputes between shareholders, the shareholder agreement should outline the process for resolving conflicts. This section should specify whether disputes will be resolved through mediation, arbitration, or litigation.

7. Confidentiality

The agreement should include confidentiality provisions that protect sensitive company information and prevent shareholders from sharing company secrets with competitors.

8. Termination

Finally, the shareholder agreement should outline the circumstances under which the agreement will terminate, such as the sale of the company or the dissolution of the company. This section should also specify the process for winding down the company and distributing profits to shareholders.

In conclusion, a shareholder agreement is a crucial document for any company with multiple shareholders. By including clear and specific terms, such as those outlined above, the agreement can help prevent disputes, protect company interests, and ensure fair decision-making.