A Shareholder Agreement is an agreement between all or some of the shareholders (or stockholders)
of a corporation. This contract establishes the rights of shareholders and the duties and powers of
the Board of Directors and management. A Shareholders’ Agreement is very beneficial when the
Corporation is closely-held or there are only a few shareholders. Also known as a stockholder
agreement. A typical shareholders’ agreement might do some or all of the following:
- determine rights related to the sale, issuance or subsequent distribution of shares (e.g. rights of
first refusal, piggyback rights and pre-emptive rights); - set out the rights and duties of the officers and other management;
- create options to buy or sell the shares (a shotgun clause);
- determine what will happen in case of death, retirement, etc., of a shareholder (with the value of
the shares to be calculated according to a certain formula); - establish the number of Directors on the Board and their duties;
- provide existing shareholders with the right to approve future shareholders.