Free Shareholder Agreement

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Shareholder Agreement Details
Q. What is a Shareholders' Agreement? A. A Shareholders' 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. A typical shareholders' agreement might do some or all of the following:
(1) determine rights related to the sale, issuance or subsequent distribution of shares (e.g. rights of first refusal, "piggyback" rights and pre-emptive rights);
(2) set out the rights and duties of the Officers and other management;
(3) create options to buy or sell the shares (e.g. a "shotgun" clause);
(4) 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);
(5) establish the number of Directors on the Board and their duties;
(6) provide existing shareholders with the right to approve future shareholders.
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Corporation Information
Name:
Address:
Jurisdiction of Incorporation:
Select the state in which the corporation was incorporated or the state in which the corporation was continued. If you are unsure of your corporation's jurisdiction, check your articles of incorporation or corporate charter.

Is the Corporation a close corporation?
Some states authorize the shareholders of close corporations, but not the shareholders of other corporations, to enter into an agreement that restricts the discretion and powers of the board of directors. Thus, your answer will influence the options available to you in this agreement. If you do not know if your corporation is a close corporation, look at the articles of incorporation for your corporation. If your corporation was incorporated in Delaware, look at the certificate of incorporation.
Shareholder Information Q. Who are the parties to the Shareholders' Agreement? A. The parties to a Shareholders' Agreement are the shareholders of the corporation. Ideally, all Shareholders will participate in the Shareholders' Agreement.
Number of Shareholders:
 
First Shareholder
Name:
Address:
Type:
Second Shareholder
Name:
Address:
Type:
Third Shareholder
Name:
Address:
Type:
Fourth Shareholder
Name:
Address:
Type:
Fifth Shareholder
Name:
Address:
Type:
Sixth Shareholder
Name:
Address:
Type:
Seventh Shareholder
Name:
Address:
Type:
Eighth Shareholder
Name:
Address:
Type:
Ninth Shareholder
Name:
Address:
Type:
Tenth Shareholder
Name:
Address:
Type:
Eleventh Shareholder
Name:
Address:
Type:
Twelfth Shareholder
Name:
Address:
Type:
Thirteenth Shareholder
Name:
Address:
Type:
Fourteenth Shareholder
Name:
Address:
Type:
Fifteenth Shareholder
Name:
Address:
Type:
Warranties
Will the Corporation warrant who owns its Shares? Q. Why would I want the Corporation to warrant its shares? A. When a Corporation warrants its shares, it lists the shareholder names as well as the number and type of shares each shareholder owns at the time that the shareholders' agreement is signed. This warranty is beneficial when the shareholders may want some confidence as to how many shares of the Corporation are issued and who owns those shares.
Will the Shareholders warrant that they are the sole beneficial
owners of their Shares?
Q. Why do we need Shareholders to warrant that they are the beneficial owners of their shares? A. Each shareholder may confirm that they are the beneficial owner of their shares. This means that that no other person has an interest in those shares nor are they held in trust for someone else. This warranty can provide some additional confidence to other shareholders and creditors regarding who "really" owns and controls the Corporation.
First Shareholder
Number of Shares:(eg. 1000, etc.)
Class of Shares:(Class "A" Voting, Class "B" Non-Voting, etc.)
Second Shareholder
Number of Shares:
Class of Shares:
Third Shareholder
Number of Shares:
Class of Shares:
Fourth Shareholder
Number of Shares:
Class of Shares:
Fifth Shareholder
Number of Shares:
Class of Shares:
Sixth Shareholder
Number of Shares:
Class of Shares:
Seventh Shareholder
Number of Shares:
Class of Shares:
Eighth Shareholder
Number of Shares:
Class of Shares:
Ninth Shareholder
Number of Shares:
Class of Shares:
Tenth Shareholder
Number of Shares:
Class of Shares:
Eleventh Shareholder
Number of Shares:
Class of Shares:
Twelfth Shareholder
Number of Shares:
Class of Shares:
Thirteenth Shareholder
Number of Shares:
Class of Shares:
Fourteenth Shareholder
Number of Shares:
Class of Shares:
Fifteenth Shareholder
Number of Shares:
Class of Shares:
Directors of Corporation
Shareholders agree to elect specified directors?
Number of Directors:
First Director
Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?
Second Director
Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?
Third Director
Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?
Fourth Director
Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?
Fifth Director
Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?
Sixth Director
Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?
Seventh Director
Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?
Eighth Director
Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?
Ninth Director
Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?
Tenth Director
Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?
Eleventh Director
Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?
Twelfth Director
Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?
Describe the structure of the board of directors:

(E.g., There will be 3 directors, and they will be selected by a certain person.)
Number of Alternate Directors:
Name alternate directors in order of preference.
First Alternate Director
Name:
Second Alternate Director
Name:
Third Alternate Director
Name:
Fourth Alternate Director
Name:
Fifth Alternate Director
Name:
Sixth Alternate Director
Name:
Seventh Alternate Director
Name:
Eighth Alternate Director
Name:
Ninth Alternate Director
Name:
Tenth Alternate Director
Name:
Eleventh Alternate Director
Name:
Twelfth Alternate Director
Name:
Officers of the Corporation
President
Name:
Term: e.g. Sept. 1, 2004 to Sept. 1, 2005
Per annum salary:
Vice-President
Name:
Term: e.g. Sept. 1, 2004 to Sept. 1, 2005
Per annum salary:
Treasurer
Name:
Term: e.g. Sept. 1, 2004 to Sept. 1, 2005
Per annum salary:
Secretary
Name:
Term: e.g. Sept. 1, 2004 to Sept. 1, 2005
Per annum salary:
Other Officer
Name of Office:
Name of Officer:
Term: e.g. Sept. 1, 2004 to Sept. 1, 2005
Per annum salary:
Management of the Corporation Q. Why do I need to decide management issues in the Shareholders' Agreement? A. Specifying management issues in the Shareholders' Agreement preserves the right of the existing Shareholders to determine issues vital to the Corporation. If these issues are not specified in the Agreement, then the Board of Directors will be able to change and manage the Corporation as it sees fit. If you believe that the Shareholders are in a better position to determine matters of importance to the Corporation than the Directors are, you should specify all the terms you deem important to the long term health of the Corporation.
Select options for the management of the Corporation from the following list.
Specify auditor of the Corporation Q. What is an auditor? A. An auditor is a qualified accountant who performs a systematic examination of the accounting records of a corporation in order to ensure accuracy and compliance with established accounting policies and procedures.
Name of auditor:
Specify bank of the Corporation
Name of bank:
Corporation will not make capital expenditures of more than a certain amount without Shareholder approval Q. What is a capital expenditure and why would I want to have Shareholder approval to buy or dispose of them? A. A capital expenditure is money spent to acquire or upgrade physical assets such as buildings and machinery. Requiring Shareholder approval of large capital expenditures protects the Shareholders from the Corporation's employees or Officers putting too great of an investment into certain ventures without the Shareholders' approval. It protects the Shareholders' investment from the poor judgment of an Officer or employee. The amount of the limit will be dependent upon the size and resources of the Corporation as well as the Shareholders' confidence in its management.
Amount: (e.g. 10,000.00)
Corporation will not grant security interests in or encumber corporate property without Shareholder approval Q. What is a security interest? A. A security interest is an interest in corporate property that is granted to a creditor. This is normally used to obtain a loan that the creditor would not be willing to give without some sort of security. A security interest may also be created by an operation of law to ensure the performance of the obligation where a debtor has defaulted on a debt.   Q. What does encumbering corporate property mean? A. If corporate property is encumbered it means that an interest in the property is granted to another party as security for the fulfillment of some obligation.
Corporation will not dispose of assets that are worth more than a certain amount without Shareholder approval Q. What is a corporate asset? A. A corporate asset is any property owned by the corporation. This includes, but is not limited to, money, real estate, and equipment.
Amount: (e.g. 250,000.00)
Corporation will not provide financial assistance to Shareholders, officers, directors or employees Q. What does financial assistance mean? A. Financial assistance refers to any gift of money, loan or guarantee of a loan that the corporation might provide to any shareholder, officer, director, or employee. This type of assistance would typically be expressly forbidden in the corporate bylaws or in the articles of incorporation. This does not include wages, salaries, benefits, or bonuses.
Corporation will not redeem shares except as set out in this Agreement Q. What does redeem shares mean? A. Share redemption is when the Corporation purchases its own share from the market or from a shareholder.   Q. How does a Corporation redeem stock? A. A corporation can redeem stock by repurchasing it from existing Shareholders and placing the stock back in the Corporation's name. This is done mostly by established Corporations. It is usually only done where the Corporation has enough cash to make the purchase while still covering operating expenses. Redeeming shares transfers equity back into the Corporation, increasing the company's future value.
Corporation will not issue shares after execution of this Agreement except as set out in this Agreement Q. What does issue shares mean? A. Issuing shares is where a Corporation places shares for sale either on the market or privately to individuals.
Corporation will not issue shares for non-money consideration Q. When would a Corporation issue stock for non-money consideration? A. Corporations will sometimes issue stock for non-money considerations when they are trying to attract top level professionals and skilled workers to the Corporation or when they are trying to purchase property but do not have the capital to do so.
Restrict Corporation to specific business
What is the Corporation's business?
Prohibit Corporation from specific business
Type of business?
Add additional clauses about the management of the Corporation
How many?
First additional clause:
Second additional clause:
Third additional clause:
Fourth additional clause:
Capital requirements of the Corporation
If the Corporation requires additional funds to pay creditors or carry on business
Q. What is the difference between a Shareholder Loan and purchase of shares? A. When a Shareholder purchases shares, the Shareholder increases their equity in the company. When a Shareholder makes a Shareholder Loan to the company, it is a personal debt owed to the Shareholder by the company, as though both were private individuals. The debt must be repaid, but it does not increase the Shareholder's equity in the company.
Who will determine that the Corporation requires additional funds?
Restrictions on Transfer or Disposal of Interest in Shares
Are Shareholders prohibited from selling or transferring their shares or any interest in their shares?
Death or Incapacity of a Shareholder
If a Shareholder dies or becomes incapacitated
Dispute Resolution
How will disputes among Shareholders be resolved? Q. What is the difference between mediation and arbitration? A. Mediation is a process by which a neutral third party, the mediator, assists the conflicting parties in negotiating an agreement regarding the issue in conflict. Arbitration is a process by which the conflicting parties present their conflict to an agreed upon neutral third party who, upon hearing from both parties, decides on how to resolve the issue.   Q. When would the use of a mediator or arbitrator to settle disputes be beneficial? A. A mediator or arbitrator should be used when the parties are at a deadlock over an issue. Mediation and arbitration are superior processes when there is a long term relationship involved and the survival of the business relationship is desirable. If the dispute is not resolved and goes to court, a judge may decide on a compromise that is not desirable to either party, possibly to dissolve the company. But, if both parties agree to choose a neutral third party mediator or arbitrator to resolve the dispute, the business relationship may be able to continue successfully.
How will arbitrator be appointed?
How will mediator be appointed?
Name of arbitrator or firm that provides arbitration services:
Name of mediator or firm that provides mediation services:
Include shot gun? Q. What is a "shotgun" clause? A. A "shotgun" clause provides an escape mechanism for Shareholders if there is a serious dispute that cannot be resolved. One Shareholder may offer to buy the other shareholder's share for a certain price. A shotgun clause stipulates that the other shareholder may either sell his/her share at that price, or buy the offering shareholder's shares at that same price. This process provides incentive for the offering shareholder to name a fair price.

However, if shareholders have unequal financial resources, one shareholder could specify an unfairly low price, knowing that the other shareholder cannot afford to buyout the offered shares. The offerer could then turn around and buy the shares of the weaker shareholder at the unnaturally low bid. The shotgun clause, therefore, might also require that a fair price be set for any buyout offer.
Include right of first refusal? Q. What is a right of first refusal? A. A right of first refusal requires that when an existing Shareholder wants to sell his shares, all shares must first be offered to existing Shareholders on a pro rata basis, which enables the existing Shareholders to retain their percentage stake in the Corporation, before being sold to an outside third party. It also protects existing Shareholders from unwelcome new Shareholders. However, if the existing Shareholders cannot afford to buy the shares, the shares may still be sold to the third party and existing Shareholders may end up with a new co-owner. One shortcoming of the right of first refusal is that it may cause long delays in the sale of shares.
Include Tag along rights? Q. What are "piggyback" rights? A. A "tag-along" clause (also called "piggyback" rights) protects minority Shareholders in the event of a third party buyout. If a majority Shareholder sells his/her shares to a third party, the minority Shareholder has the right to become part of the transaction and sell his/her shares to the same third party purchaser at the same price and on similar terms. Thus, the third party, if they wish to purchase the shares, must be prepared to purchase ALL of the outstanding shares. The benefit to the minority Shareholder is that they can avoid being in business with an unwanted new co-owner. It also ensures that all Shareholders will receive similar buyout offers and protects small shareholders from being forced to accept much less attractive offers. A shortcoming of tag along rights is that it may cause long delays in the sale of shares.
Valuation of shares
Include a valuation clause? Q. What is a valuation clause and why do I need it? A. A valuation clause provides a method to determine the value of the Corporation's shares. Such a process is needed when Shareholders want to sell their shares or when a Shareholder dies and the other Shareholders want to buy those shares. Since most small corporations are private (not traded on a stock exchange) the shares are hard to value without a predetermined method. Having this clause will reduce the disagreement and uncertainty that occurs when a Shareholder wants to buy or sell shares.
The value will be set by: Q. Why would I need a professional valuator? A. Shares that are not publicly traded on a stock market are hard to valuate because they are not easily convertible to cash. Valuating the shares yourself may lead to a large over- or under-valuation of the share price. Both mistakes can be detrimental to the company and to all affected Shareholders. A professional will give a more accurate valuation that is fair to all Shareholders. However, the valuation may be expensive so you must carefully consider whether or not to use a professional valuator.
Specify the current value of the shares?
For each class of share, list the value of one share:
(e.g., Class A shares have a value of $10.00 per share. Class B shares have a value of $5.00 per share.)

What happens if Shareholders fail to set the value?
How will the Shares be valued?
Who will pay for valuator?
Dividends Q. What is a dividend? A. A dividend is a share of the Corporation's profits received by a Shareholder at specific intervals during the year. Dividends are paid on a per share basis (e.g. $0.10 per share) and are used to give Shareholders a positive return for holding onto Shares. A corporation can pay out any percentage of its profits as dividends, but most pay out less than 100%, so the corporation has assets for capital expenditures, business growth, unexpected expenses, or business losses in subsequent years.
The Corporation is required to pay dividends with the profits?
Percentage of profits that will be paid as dividends?
Specify the amount:
How often will dividends be distributed?
Specify frequency:
Additional provisions for the distribution of dividends?
Describe additional provisions here:
Term of Agreement
When will Agreement take effect?
Agreement will take effect on:
When will Agreement end? Q. When should my Shareholders Agreement end? A. The Shareholders' Agreement can end when all shareholders agree to end it, or on a specific date. The option to end it upon the agreement of all shareholders should only be used where there are a relatively small number of shareholders, the Corporation is not thinking of taking on new shareholders, and the shareholders have a good working relationship. Even one disgruntled shareholder could cause significant problems for the Corporation by refusing to terminate the agreement, even where it would in the best interests of the Corporation to do so. If there are a relatively large number of shareholders, or where the Corporation is trying to increase the number of shareholders, or if the potential exists for conflict among the shareholders, then the Shareholders' Agreement should probably be ended on a specific date.
Generally, agreements of this type may not be for more than 10 years. However, you can renew the agreement before the agreement expires.
Agreement will end on:
Signing Details
When will the Agreement be signed? Click here to select a date from calendar