Friday, March 3, 2023




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. The shareholders' agreement is intended to make sure that shareholders are treated fairly and that their rights are protected.It also allows shareholders to make decisions about what outside parties may become future shareholders and provides safeguards for minority positions.

This blog post lists some key elements that should be included. At the end, there is a template that contains some of those important clauses and can be used as a starting point in drafting.

Key Terms

Some key provisions that should be included in a shareholders' agreement are:


The preamble of the agreement is like an introduction to the deal. It should list the parties involved, company name, location and purpose.


The agreement should describe how shares will be bought, sold, or transferred. This includes both the optional and mandatory buying-back of shares by the company as well as what happens in the event of a shareholder's death or incapacity. Company's right of first refusal should also be addressed.


The agreement should set out when and how dividends will be paid to shareholders. It should also specify whether preference shares exist and, if so, what rights they confer.

Board of Directors

The agreement should establish the size of the board of directors and outline how directors will be elected or appointed. It should also set out what powers the board has and any limitations on those powers.


The agreement should identify who will manage the company on a day-to-day basis and set out their powers and duties.

Shareholder Responsibilities

The agreement should identify the responsibilities of shareholders, such as contributing money or property to the company, and outline what happens if a shareholder fails to meet those responsibilities.

Amendment Procedure

The agreement should set out how it can be amended in the future. Is majority vote enough or should it be done with a higher percentage vote? This is important because shareholders' circumstances and the business itself are likely to change over time.

Governing Law and Dispute Resolution

The agreement should specify which law will govern it and how any disputes that may arise will be resolved.


The agreement should describe how decisions will be made by shareholders. This includes specifying what proportion of shares must be represented in order for a decision to be validly made, outlining voting procedures, and identifying any decisions that require unanimous consent. Is majority vote enough for all decisions, or do some decision require a higher percentage, or even unanimous, vote?

Exit Strategy

A good shareholder agreement will define what will happen if the firm wishes to dissolve when you set up the business. An exit plan should be created as a key component of any shareholder agreement, and this may be accomplished in the following stages:

- The first stage would be to determine how shareholders would be able to recoup their investment if the company decided to dissolve. If just one shareholder wishes to leave the agreement, the other shareholders should not suffer as a result.

- The next stage is to establish whether the shareholder may sell their shares, whether they must keep their shares for a certain amount of time after declaring their intention to quit, or if they must only sell their shares to existing shareholders. You don't want a shareholder who is upset with the firm to sell their shares to anybody who will pay.

Conclusion & Template

A shareholders' agreement is a crucial document for any small business owner as it protects the interests of all involved parties while providing a clear framework for making decisions about the company moving forward. If you are thinking about drafting a shareholders' agreement for your business, consider consulting with a lawyer to ensure that all key provisions are included.

The template below can be used as a starting point. Here is a summary. This Shareholders Agreement, Stock Transfer Restrictions, and Buy-Sell Agreement is made by and between the Shareholders and the Corporation. The purpose of the agreement is to provide for the sale and purchase of a Stockholder's interest in the Corporation during their lifetime or after their death. Key provisions include:

  1. The outstanding capital stock of the Corporation, with each Stockholder's interest listed.
  2. Stock certificates are endorsed with reference to this agreement.
  3. Shareholders cannot assign or dispose of their stock except as provided in the agreement.
  4. In case of a Shareholder's death, the Corporation has the right to purchase their shares.
  5. If a Shareholder wants to sell or transfer their stock, they must provide written notice to the Corporation and other Shareholders, who have the option to purchase the shares.
  6. The total value of the capital stock is specified, with a provision for re-determination at the end of each fiscal year.
  7. The purchase price for each share upon a Shareholder's death is based on the last per share value determined before their death.
  8. In case of a Shareholder's death, the Corporation must tender full payment to their Estate or authorized Personal Representative.
  9. The agreement can be amended with the written consent of all Shareholders and terminates under certain conditions, such as dissolution or bankruptcy of the Corporation, death of all Shareholders, or disposition of a Shareholder's stock.
  10. The agreement is binding upon Shareholders, their heirs, legal representatives, successors, and assigns, as well as the Corporation and its successors or assigns.
  11. All parties must execute and deliver necessary documents to carry out the provisions of the agreement.
  12. If the Corporation cannot make a required purchase, it and the Shareholders must take necessary actions to enable the purchase.
  13. Notices must be delivered or mailed by certified or registered mail to the appropriate party.
  14. The agreement is governed by the laws of the State of Delaware.


THIS AGREEMENT made this the _____ day of ____________, 20______, by and between the Shareholders of _________________________________________, a corporation of the State of Delaware, hereinafter "Corporation", who own all the outstanding capital stock of the Corporation, and the Corporation.  This agreement is executed by each Shareholder prior to or at the time of the issuance of stock in the corporation to such Shareholders.

            The purpose of this Agreement is (1) to provide for the sale by a Stockholder during his lifetime, or by a deceased Stockholder's Estate, of his interest in the Corporation, and for the purchase of such interest by the Corporation, at a price fairly established; (2) and to provide all or a substantial part of the funds for the purchase.

            THEREFORE, in consideration of the mutual promises and obligations set forth hereafter, each party hereto agrees as follows:


            At this time of the execution of this agreement, the outstanding capital stock of the Corporation consists of _______ shares, and each Stockholder's interest is as follows, including stock to be issued to the Shareholder receiving stock at the time of the execution of this agreement:

_____________________________________________, ________ Shares

_____________________________________________, ________ Shares

_____________________________________________, ________ Shares

_____________________________________________, ________ Shares

_____________________________________________, ________ Shares

_____________________________________________, ________ Shares

            All Stock Certificates evidencing shares of the corporation have been and shall be endorsed as follows:

"The sale or transfer of this certificate is subject to a Shareholders Agreement, Stock Restriction Provisions and Buy-Sell Agreement, dated _______________, 20_____, on file with the secretary of the corporation."

            While this Agreement is in effect, no Stockholder shall have any right to assign, encumber, or dispose of his stock except as provided herein. In the event of the death of a shareholder, the Corporation shall be entitled, but not required, to purchase all of the deceased shareholder’s shares from his Estate.  Said purchase shall be on the terms hereinafter set forth.


            If a Shareholder desires to sell or transfer of all or any part of his stock during his lifetime, he shall give the Corporation and each of the other Shareholders written notice of his intention.  If there is a prospective transferee other than the Corporation or another existing Shareholder, such notice shall state the name and address of such transferee and the terms and conditions of the proposed transfer. 

            Upon receipt of such written notice, the Corporation shall have the option to purchase all of the shares of stock offered for sale or transfer.  The purchase price shall be the amount established in Article IV below; provided, however, that if a lower price was stated in the notice to the Corporation, it shall have the right to purchase at such lower price.

            If the Corporation fails to purchase all of the shares offered for sale within thirty (30) days after receipt of the notice, individual Shareholders shall have an additional thirty (30) days within which to purchase the unsold shares for the same price. 

            Unless the Corporation or another Shareholder purchase all of the stock offered for sale within the successive time periods allowed, upon expiry of the last such period, the stock may be disposed of to the person and upon the terms and conditions described in the notice.

            Upon every sale or transfer in the Corporation under this Article, the Secretary of the Corporation shall record ownership of the new owner(s) on the books of the Corporation.  Any changes in the respective ownership interests of the Shareholders resulting from a purchase and sale between Shareholders which does not terminate this Agreement as provided in Article V. hereof, shall also be recorded in the books and records of the corporation.


            At this time, the total value of the capital stock of the Corporation for the purposes of this Agreement, is $________, which is $________ per share.  This value shall remain effective for the purposes of this Agreement, subject to a re-determination of the value of the stock by the Corporation at the end of each fiscal year, such re-determination to be recorded in the books and records of the Corporation by the Secretary. 

            The purchase price for each share of stock upon a Shareholder's death shall be the last per share value determined  and recorded by the Corporation in its books and records prior to the Shareholder’s death.


            In the event of the death of a shareholder, the Corporation, in exercising its option to purchase under Article I and II of this Agreement, shall tender full payment to the Estate or duly authorized Personal Representative of the deceased Shareholder. The personal representative of the deceased Shareholder shall then promptly execute (and shall cause any other party or parties whose signatures may be necessary to transfer a complete title to the deceased Shareholder's shares to execute) and, concurrently with receipt of the full purchase price for the deceased Shareholder's shares (either in cash, or in cash and notes, as provided above), shall deliver all instruments necessary to effectuate the transfer of the deceased Shareholder's shares to the Corporation.  Transfer of such shares shall be made free and clear of all taxes, debts, claims or other encumbrances.


            This Agreement may be amended at any time in any particular way by a writing signed by all the Shareholders. 

            This Agreement shall terminate upon:

            (A)      The written Agreement of the Corporation and all the Shareholders;

            (B)       The dissolution, bankruptcy or insolvency of the Corporation;

(C)       The death of all Shareholders simultaneously, or within a period of thirty (30) days; or upon the death of the last surviving Shareholder or Shareholders at any time before the purchase and sale under this Agreement of the interest in the Corporation of any other Shareholder to die;

(D)      The sale or other disposition of all of a Shareholder's stock during his lifetime to any party or parties except the Corporation or any other Shareholder or Shareholders; or

(E)       Acquisition by the Corporation of the interest of the Shareholder whose death leaves only one (1) surviving Shareholder a party to this Agreement.


            This Agreement shall be binding upon the Shareholders, their heirs, legal representatives, successors and assigns and upon the Corporation, its successors or assigns.


            The Corporation, the Shareholders, the Personal Representative of any deceased Shareholder, and all other parties bound by this Agreement shall promptly execute and deliver any documents necessary and useful to carry out the provisions of this Agreement.


            If, at any time, the provisions of applicable statutes or of its charter or by-laws prevent the Corporation from making a purchase required hereunder, the Corporation and the Shareholders shall take any action which may be necessary to enable the Corporation to make such purchase.


            Any notice provided for under this Agreement shall be deemed duly given if delivered or mailed by certified or registered mail to the party entitled to receive such notice at the address of such party contained in the records of the Corporation.


            This Agreement shall be construed according to the laws of the State of Delaware.

            IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written.



Attest:  __________________________