Shareholder agreement
A shareholder agreement is a private contract among some or all of a company’s shareholders. It sets out how decisions get made, how shares can be sold or transferred, what happens if a shareholder dies, retires or wants out, and how disputes between owners are resolved.
A corporation’s articles and bylaws set the legal minimum for how it operates, but they rarely address the practical questions that come up between business partners. A shareholder agreement fills that gap with rules the owners actually negotiated and agreed to.
Common topics
- Who can sit on the board and how major decisions get approved
- Restrictions on selling or transferring shares to outsiders
- Rights like drag-along, tag-along and rights of first refusal
- What happens on death, disability, retirement or a dispute between owners
- How the company or remaining shareholders can buy out a departing owner
Why it matters before a sale
When a business is sold, the shareholder agreement usually controls how that sale can happen — for example, whether a majority can force a minority shareholder to sell alongside them. Buyers and their lawyers review it early, because provisions buried in an old shareholder agreement can slow down or complicate a deal that otherwise looks straightforward.
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Treadstone LawLegal commentaryCorporate Law
- 02Treadstone LawLegal commentaryBuying & Selling a Business — article library
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