Shareholders Agreement

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									Shareholders’ Agreement
This is an agreement between the shareholders of a corporation that establishes rules
and guidelines for stock ownership. This agreement defines the rights and
responsibilities of each shareholder and provides a method for determining the value of
shares. In addition, this agreement grants the corporation the right of first refusal before
shares can be offered to outside third-parties. This agreement can be used by the
shareholders of a small business to establish uniform and consistent rules for
shareholders.
                                SHAREHOLDERS’ AGREEMENT

THIS SHAREHOLDERS’ AGREEMENT (hereinafter referred to as the “Agreement”)
entered into _________________ [Instructions: Insert the date of this agreement] by and
between _____________________ [Instructions: Insert the Corporation’s name] (hereinafter
referred to as the “Company”) and __________________, [Instructions: Insert a
Shareholder’s name] __________________, [Instructions: Insert a Shareholder’s name]
__________________, [Instructions: Insert a Shareholder’s name] __________________,
[Instructions: Insert a Shareholder’s name] [Instructions: Add or remove lines as necessary
to include every Shareholder entering into this agreement] (each of whom is sometimes
referred to hereinafter individually as “Shareholder” and collectively as “Shareholders”).

WHEREAS, Company is duly incorporated on ________________, [Instructions: Insert the
date the corporation was incorporated] and pursuant to the laws of the State of
__________________, [Instructions: Insert the state of incorporation] and Company’s
Articles of Incorporation (the “Articles”) authorized a total of _______________ (_____)
[Instructions: Insert the total number of shares that could be issued] shares of
___________________ [Instructions: Insert type of stock (for example: common stock,
without par value)] (each a “Share,” the totality of which comprise all shares of Company,
whether now or hereafter authorized or existing) and has an authorized capital consisting of
_________________ (___) shares; [Instructions: Insert the total number of shares that have
been issued as of the date of this agreement]

WHEREAS, at the date set forth above, ________________ (___) [Instructions: Insert the
total number of shares that have been issued as of the date of this agreement] Shares of
Company are presently issued and outstanding;

WHEREAS, Company and Shareholders desire to enter into this Agreement, which sets forth
the limitations for the transfer of Shares, the disposition of Shares upon a Shareholder’s death,
and certain other matters;

NOW, THEREFORE, in consideration of the foregoing and of the mutual promises and
covenants contained herein, and other good and valuable consideration, the receipt of which is
hereby acknowledged, the Parties hereto agree as follows:

1.       RESTRICTIONS

         A. No Shareholder of Company shall transfer, sell, assign, pledged, or hypothecate
            (“transfer”) any of that Shareholder’s Shares to any other party, whether now owned
            or hereafter acquired, except as permitted by this Agreement. A Shareholder is
            expressly permitted: to transfer, that Shareholder’s Shares to a grantor trust for the
            Shareholder’s own benefit or to a third party provided that the Shareholder obtains
            the prior written consent of Company and the other Shareholders.

         B. By Company’s execution of this Agreement, Company hereby agrees that it shall not
            transfer any Shares on the books of Company, unless such transfer of Shares is


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              permitted by the terms of this Agreement and shall not issue any Shares of Company
              except in accordance with this Agreement.

2.       RIGHT OF FIRST REFUSAL

         A. Any Shareholder who desires to transfer or any of that Shareholder’s Shares (the
            “Transferring Shareholder”) shall give notice of such proposed transfer (the “Notice”)
            to Company and to the other Shareholders and shall set out in the Notice the number
            and class of Shares that the Transferring Shareholder desires to transfer (the “Offered
            Shares”) and the terms upon which and the price at which the Transferring
            Shareholder desires to transfer the Offered Shares (the “Purchase Price”).

         B. Upon Notice given, the other Shareholders shall have the right to purchase all, but not
            less than all, of the Offered Shares for the Purchase Price. The other Shareholders
            shall be entitled to purchase the Offered Shares pro rata based upon the number of
            Shares beneficially owned by the Shareholder or in such other proportion as the
            Shareholders may agree in writing.

         C. Within _____________ (___) [Instructions: Insert the number of days the 1st
            purchase period will last] business days of having been given Notice (the “1st
            Purchase Period”), each Shareholder who desires to purchase all of the Offered
            Shares that that Shareholder is entitled to purchase shall give notice to the
            Transferring Shareholder, Company, and the other Shareholders. If any Shareholder
            does not give such Notice, the Offered Shares that that Shareholder had been entitled
            to purchase (the “Rejected Shares”) may instead be purchased by Shareholders who
            did give such Notice, pro rata based upon the number of Shares beneficially owned
            by such Shareholders as between themselves or in such other proportion as such
            Shareholders may agree in writing, and, within _____________ (___) [Instructions:
            Insert the number of days the 2nd purchase period will last] business days of the
            expiry of the 1st Purchase Period (the “2nd Purchase Period”). Each Shareholder who
            desires to purchase all of the Rejected Shares that that Shareholder is entitled to
            purchase in accordance with the provisions of this Paragraph shall provide additional
            notice to the Transferring Shareholder, Company, and the other Shareholders. If any
            Shareholder entitled to give additional notice does not do so, the Rejected Shares that
            the Shareholder had been entitled to purchase may instead be purchased by the
            Shareholders who did give such notice, and so on, until the Shareholders are willing
            to purchase all of the Offered Shares or until they are not willing to purchase any
            more. If the Shareholders are willing to purchase all, but not less than all, of the
            Offered Shares, the transaction of purchase and sale shall be completed in accordance
            with the terms set out in the Notice.

         D. If the Shareholders do not give Notice that they are willing to purchase all of the
            Offered Shares, in accordance with the provisions of Paragraph 2(C) above, the rights
            of the Shareholders to purchase the Offered Shares shall forthwith cease and the
            Transferring Shareholder may transfer the Offered Shares to any person within
            _____________ (___) [Instructions: Insert the number of months that the



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              transferring shareholder will be allowed to sell to outsiders if no existing
              shareholder purchases the shares] months after the expiry of the 1st Purchase
              Period, the 2nd Purchase Period, or any other applicable purchase period, as the case
              may be, as specified in Paragraph 2(C), for a price not less than the Purchase Price
              and on terms no more favorable to such person than those set forth in the Notice,
              provided that the person to whom the Transferring Shareholder’s Shares are to be
              transferred agrees prior to such transfer to be bound by this Agreement and to become
              a party hereto in place of the Transferring Shareholder with respect to the Offered
              Shares. If the Offered Shares are not transferred within such period on such terms,
              the right of first refusal of the Shareholders pursuant to this paragraph 2 shall again
              take effect.

3.       DEATH OR INCAPACITY OF SHAREHOLDER

         A. In the event that any Shareholder dies, or is determined, by a court of law, to be
            mentally incompetent (the “Incapacitated Shareholder”) and has a committee or other
            legal representative appointed to administer the Incapacitated Shareholder’s affairs
            (the “Incapacitated Shareholder’s Representative”), Company may, at Company’s
            option, redeem or purchase for cancellation within _____________ (___)
            [Instructions: Insert the number of days that Company has to purchase shares
            after the date of shareholder death or incompetence] days of the date of death or
            such determination, all of the Shares of any class registered in the name of the
            Incapacitated Shareholder at fair market value at such date, provided that Company
            provides the Incapacitated Shareholder’s Representative with at least _____________
            (___) [Instructions: Insert the number of days the Company has to provide if
            they want to purchase the shares] days written notice.

         B. The Board of Directors shall determine, at its sole discretion, whether and upon what
            terms to purchase contracts of life insurance insuring the lives of the Shareholders, or
            one or more of them, for the purpose of providing funds for the purchase of their
            Shares in accordance with Paragraph 3(A). If Company exercises its option to
            purchase the Shares of an Incapacitated Shareholder, any proceeds so obtained by
            Company from such life insurance contracts upon the death of such Shareholder shall
            be used by Company to purchase, in whole or in part, as such proceeds may be
            available, the Shares owned by such Incapacitated Shareholder and any balance of
            such proceeds shall be retained for the sole benefit of Company.

         C. In the event that there are no life insurance proceeds payable to Company upon the
            death of an Incapacitated Shareholder, Company may, at its sole option, elect to
            assign to the remaining Shareholders, Company’s option to purchase the Shares
            registered in the name of the Incapacitated Shareholder upon the same terms and
            conditions as specified in Paragraph 3(A) above. If one or more of the remaining
            Shareholders wish to exercise the option to purchase so assigned to the remaining
            Shareholders, such Shares shall be purchased by such Shareholders in the proportions
            that they, in their sole discretion, determine.




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4.       BANKRUPTCY OR OTHER INVOLUNTARY TRANSFER

         A. In the event of the bankruptcy of any Shareholder or the transfer, voluntary or
            involuntary, by any Shareholder of any of his or her Shares to any creditor in total or
            partial satisfaction of any debt, obligation, judgment, or other liability (any trustee or
            receiver of such Shareholder’s assets or any such creditor referred to herein as the
            “Involuntary Transferee;” the bankrupt Shareholder or the Shareholder whose interest
            passes to the involuntary transferee referred to herein as the “Bankrupt Shareholder”),
            Company shall have the option to purchase all but not less than all of the Shares of
            the Bankrupt Shareholder by giving written notice of its election to purchase same
            within _____________ (___) [Instructions: Insert the number of days notice the
            Company must provide to purchase the shares of a bankrupt shareholder] days
            after such bankruptcy has been adjudicated or such transfer shall have occurred at a
            price equal to ___________ percent (____%) [Instructions: Insert the percentage of
            the fair market value that will be paid for such shares] of the fair market value of
            such Shares.

         B. The purchase price for the Shares of the debtor party shall be paid within
            _____________ (___) [Instructions: Insert the number of days after the notice
            that the debtor party will be paid] days after the delivery of Notice pursuant to
            Paragraph 4(A) above by Company. Upon receipt of such consideration, the
            Involuntary Transferee shall execute and deliver whatever instruments of conveyance,
            assignment, and release shall be necessary or desirable to carry out such transfer, and,
            if he or she fails or refuses to do so, the Secretary or any other duly appointed officer
            of Company is irrevocably constituted and appointed the attorney of the Bankrupt
            Shareholder to effect such execution.

         C. Company may, at its sole option, elect to assign to the remaining Shareholders the
            option to purchase the Shares from the Involuntary Transferee upon the same terms
            and conditions as specified in Paragraphs 4(A) and 4(B) above. If one or more of the
            remaining Shareholders wishes to exercise the option to purchase assigned to the
            remaining Shareholders, such Shares shall be purchased by such Shareholders in the
            proportion that they shall, in their sole discretion, determine.

5.       GENERAL PROVISIONS REGARDING TRANSFER

Notwithstanding anything to the contrary contained herein, in the event a Transferring
Shareholder desires to transfer that Transferring Shareholder’s Shares:

         A. Transferring Shareholder shall deliver to the purchaser certificates representing the
            Shares to be transferred, duly endorsed in blank for transfer, along with original
            executed copies of all documents as required to affect the transfer including, without
            limitation, succession duty releases, letters probate, and declarations of transmission.
            Transferring Shareholder shall also deliver to Company a certified check representing
            payment in full of all amounts owed by Transferring Shareholder to Company, if any;




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         B. The purchaser shall deliver to Transferring Shareholder the purchase price and
            Company shall deliver to Transferring Shareholder a certified check representing
            payment in full for all amounts owing by Company to the Transferring Shareholder, if
            any.

         C. In the transfer, Transferring Shareholder shall warrant to the purchaser that:

                 i.    Transferring Shareholder has good, marketable title to the Shares to be sold,
                       free and clear from any option or refusal right, voting trust, pledge,
                       hypothecation, mortgage, lien, charge, encumbrance, security interest, or other
                       right or interest of any other person other than by or pursuant to this
                       Agreement; and

                ii.    Transferring Shareholder has full power and authority to complete, and is
                       otherwise fully entitled to complete, the transfer;

         D. In the event that the Shares to be transferred represent all of the Shares then held by
            Transferring Shareholder:

                 i.    Company shall use its best efforts to deliver a release of Transferring
                       Shareholder from any guarantees and covenants which the Shareholder has
                       given on behalf of Company and shall indemnify the Transferring Shareholder
                       with respect to any claims for which such a release cannot be obtained;

                ii.    Transferring Shareholder shall deliver a release from any and all claims which
                       the Transferring Shareholder may have against Company or the remaining
                       Shareholders.

         E. In the event a Transferring Shareholder fails to comply with the provisions of
            Paragraph 5(A) above, and all conditions of such Paragraph have been met by the
            purchaser and the remaining Shareholders, Transferring Shareholder hereby
            irrevocably appoints the Secretary or any other authorized officer of Company as
            Transferring Shareholder’s attorney to effect the transfer of the Shares to be sold on
            the books of Company.

6.       MANDATORY SALE

In the event that the Shareholders receive a bona fide, arms length, third-party offer to purchase
all of the issued and outstanding Shares upon the same terms and conditions and the holders of at
least ___________ percent (____%) [Instructions: Insert the minimum percentage of shares
that must be offered the purchase for this provision to apply] of the then-issued and
outstanding Shares desire to accept, all of the Shareholders shall be required to transfer their
Shares and take all such actions and execute all such further agreements or instruments as may
be reasonably necessary or desirable in order to complete said transfer.

7.       VALUATION



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         A. For the purposes of any transfer, contemplated herein and expressed to occur at fair
            market value, the parties to such transfer shall, at the date of the transfer, make their
            joint determination of the fair market value of the Shares which are the subject of the
            transfer on the basis of the most current financial information with respect to
            Company, the contracts entered into by Company, the markets and marketability of
            Company as a whole, and any other factors relevant to such valuation, all in
            accordance with generally accepted accounting principles, which principles shall be
            consistently applied. In the event that the parties to said transfer are able to make
            such a joint determination, then such value shall be binding upon them for the
            purposes of that transfer. Said determination of fair market value shall have no
            bearing on any other transfers or upon any other parties hereto.

         B. In the event that the parties to a transfer are unable to make a joint determination of
            the fair market value of the Shares subject to the transfer, within the time provided in
            paragraph 7(A) above, the parties to the transfer shall mutually agree upon an
            independent business valuator (the “Valuator”). The Valuator shall determine the fair
            market value of all of the issued and outstanding Shares in the capital of Company as
            of the last day of the month in which the event giving rise to the transfer occurs. If
            the parties to the transfer cannot mutually agree upon a Valuator within
            _____________ (___) [Instructions: Insert the number of days the parties have to
            agree on a valuator] days, then the Valuator shall be chosen by a court of competent
            jurisdiction upon the application of either of the parties to the transfer. The
            determination of the fair market value of all of the issued and outstanding Shares in
            the capital of Company made by the Valuator shall, for the purposes of this
            Agreement, be binding and effective upon the parties to the transfer. Said
            determination of fair market value shall have no binding on any other transfer or upon
            any other parties hereto. In arriving at such valuation, the Valuator shall take into
            account and apply generally accepted accounting and valuation principles. The
            Valuator shall value Company as a going concern but shall not apply any discount or
            premium for a minority or majority interest, as the case may be, and shall not include
            as an asset of Company, the proceeds of any insurance policies payable on the death
            of a Shareholder. Additionally, if the event in question is the death of a Shareholder,
            the Valuator shall not have regard to the occurrence of the death of the deceased or
            the imminent possibility thereof. The valuation arrived at by the Valuator, made as
            an expert and not as umpire or arbitrator, shall be final and binding and no appeal
            shall lie therefrom.

8.       INDEPENDENT LEGAL ADVICE

Each of the Shareholders hereby acknowledges that, prior to executing this Agreement, they
have been advised to and have had the opportunity to obtain independent legal advice and that,
upon consideration and of their own free will and volition, they have determined that they do not
require independent legal advice.       The Shareholders understand fully the nature and
consequences of executing this Agreement and that none of the other parties hereto, or any of




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their employees, agents or officers, have used any compulsion or made any threat or exercised
any undue influence to induce them to execute this Agreement.

9.       MISCELLANEOUS

         A. This Agreement constitutes the entire agreement between the parties with respect to
            the specific subject matter hereof and supersedes all prior agreements or
            understandings of any kind with respect to same.

         B. Any notice or other communication made for the purposes of this Agreement shall be
            given or made in writing and shall be served personally, by courier, or prepaid
            registered mail, return receipt requested:

                 i.    In the case of Company, to: ________________________________;
                       [Instructions: Insert the Company’s address]

                ii.    In the case of any Shareholder, to the last known address of that Shareholder
                       as recorded in the records of Company;

               iii.    Or to such other address as any of the parties shall have last notified in the
                       manner provided herein.

         C. This Agreement may be executed in any number of counterparts, each of which when
            so executed shall be deemed to be an original and such counterparts together shall
            constitute one agreement deemed to be dated as of the date hereof.

         D. To the extent necessary to implement the provisions of this Agreement, the power of
            the Board of Directors of Company to manage or supervise the management of the
            business and affairs of Company is hereby restricted.

         E. Subject to the provisions herein, this Agreement may not be assigned, in whole or in
            part, without the prior approval of all parties hereto. Subject thereto, this Agreement
            shall inure to the benefit of and shall be binding upon the parties hereto and their
            respective successors, heirs, executors, administrators, other personal and legal
            representatives (including trustees and receivers in bankruptcy), and permitted
            assigns.

         F. The term of this Agreement shall commence on the date first set forth above and
            continue in full force and effect until there is only one holder of Shares of record or
            until terminated by agreement of the holders of all of the then-issued and outstanding
            Shares. This Agreement may only be amended by the agreement of the holders of at
            least __________ percent (____%) [Instructions: Insert the percentage of shares
            that must approve an amendment to this agreement] of the then-issued and
            outstanding Shares.




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         G. It is intended that each provision of this Agreement shall be viewed as separate and
            divisible, and in the event that any provision herein shall be held invalid or
            unenforceable, the remaining provisions shall continue to be in full force and effect.

         H. The parties shall sign such further and other documents, cause such meetings to be
            held, resolutions passed and by-laws enacted, exercise their vote and influence, do
            and perform and cause to be done and performed such further and other acts and
            things as may be necessary or desirable in order to give full force and effect to this
            Agreement and every part hereof.

         I. Time shall be of the essence of this Agreement and of every part hereof and no
            extension or variation of this Agreement shall operate as a waiver of this provision.

         J. This Agreement shall be governed in accordance with the laws of the State of
            ________________, [Instructions: Insert the state’s laws that will govern this
            agreement] applicable to agreements to be wholly performed therein.

         K. If legal action is instituted to enforce any of the provisions of this Agreement, the
            prevailing party therein shall be entitled to recover his reasonable costs and attorneys’
            fees.

         L. Each Shareholder acknowledges receiving and reading a copy of this Agreement prior
            to its execution and acknowledges that the Shareholder has had an opportunity to seek
            independent legal advice prior to its execution. Each Shareholder acknowledges that
            the Shareholder understands fully the nature and effect of this Agreement and that he
            or she has executed this Agreement of the Shareholder’s own free will and volition
            and under no compulsion to act.

[THE REMAINDER OF THIS PAGE HAS BEEN LEFT INTENTIONALLY BLANK –
SIGNATURE PAGE TO FOLLOW]




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IN WITNESS THEREOF, the parties have duly executed this Agreement as of the day and
year first written above.

COMPANY:


________________________________
By: _____________________________ [Instructions: Insert the signatory’s name]
Title: ____________________________ [Instructions: Insert the signatory’s job title]


SHAREHOLDERS:



________________________________
By: ___________________________ [Instruction: Insert the signatory’s name]
Title: Shareholder



________________________________
By: ___________________________ [Instruction: Insert the signatory’s name]
Title: Shareholder



________________________________
By: ___________________________ [Instruction: Insert the signatory’s name]
Title: Shareholder



________________________________
By: ___________________________ [Instruction: Insert the signatory’s name]
Title: Shareholder




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