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S Corporation Shareholder Agreement Comprehensive

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S Corporation Shareholder Agreement Comprehensive Powered By Docstoc
					This is an agreement among the shareholders of an S Corporation. S Corporations are
particularly beneficial because they do not pay federal income tax. Rather, the
corporation’s profits and losses are passed through to the shareholders that must report
the income on their individual tax returns. For a business to be qualified for S
Corporation status, they must have one class of stock and less than 100 shareholders.
This agreement sets out the rights and responsibilities of each shareholder pertaining to
the sale of shares, termination, and shareholder deaths. This agreement should be
used by small businesses or other entities that qualify as S Corporations and want a
sample shareholders agreement.
      S COMPANY SHAREHOLDERS’ AGREEMENT - COMPREHENSIVE

THIS SHAREHOLDERS’ AGREEMENT (hereinafter called the “Agreement”) made as of the
_____ day of ___________, 2______.

B E T W E E N:

                     ALL OF THE SHAREHOLDERS from time to
                     time who are listed in Schedule "A" annexed hereto,

                     (hereinafter called the "Shareholders")

                                                                           OF THE FIRST PART

                                            - and -

                     ____________________,    a   company    duly
                     incorporated under the laws of the State of
                     _______________________,

                     (hereinafter called the "Company")

                                                                     OF THE SECOND PART

I.            RECITALS

              WHEREAS:

1.01            The Company is a duly incorporated ____________________ business Company
with its registered office located at ___________________, which is in the business of
_______________________, and such other and ancillary businesses as are necessarily
incidental thereto;

1.02            The Shareholders are all of the shareholders of the Company and as such have
entered into this Agreement to make arrangements regarding the organization and conduct of the
business of the Company, the transfer of their shares under certain circumstances and other
matters relevant to their shareholdings;

1.03             The Company has joined in this Agreement to be bound by the terms hereof and
to give full efficacy and effect to the terms hereof;

II.           DEFINITIONS AND INTERPRETATION

2.01          As used in this Agreement, the following words and phrases mean:

        A.    "Act" means the legislation of the governing jurisdiction of the Company, as
              amended from time to time;
       B.     "Agreement" means this Agreement and any Schedule annexed hereto or any
              instrument supplemental or ancillary hereto, and the expressions "Article",
              "paragraph" and "sub-paragraph" followed by a number means and refers to the
              specified Article, paragraph or sub-paragraph of this Agreement;

       C.     "Board of Directors" means the board of directors of the Company elected from
              time to time;

       D.     “Buyer” means the Company or those Continuing Shareholders who purchase an
              Offering Shareholder’s shares pursuant to the terms and conditions of this
              Agreement;

       E.     “Continuing Shareholders” means all Shareholders other than the Offering
              Shareholder;

       F.     "Controlling Shareholder" means the individual who has either direct or indirect
              control of a Company which is a Shareholder;

       G.     “Offering Shareholder” means any Shareholder, or his or her personal
              representative, heirs, administrators and executors, who pursuant to this
              Agreement must or does offer all or any of his or her Shares to the Company or
              the Continuing Shareholders;

       H.     "Shareholder" means those holders of shares of any and all classes in the capital
              stock of the Company as listed in Schedule "A" annexed hereto including any
              amendments, modifications or updates thereto;

       I.     "Shareholders" means any two or more of the Shareholder as the context requires;

       J.     "Shares" means, unless the context otherwise requires, the Shares of any and all
              classes in the capital stock of the Company; and

2.02            All payments contemplated herein shall be paid in US Dollars, in cash, by wire or
by certified check or bank draft.

2.03           The division of this Agreement into articles and paragraphs is for convenience of
reference only and shall not affect the interpretation or construction of this Agreement.

2.04            This Agreement shall be governed by and construed in accordance with the laws
of the State of _________________.

2.05           All words and personal pronouns relating thereto shall be read and construed as
the number and gender of the party or parties referred to in each case require and the verb shall
be construed as agreeing with the required word and pronoun.
2.06           When calculating the period of time within which or following which any act is to
be done or step taken pursuant to this Agreement, the date which is the reference date in
calculating such period shall be excluded. If the last day of such period is a non-business day,
the period in question shall end on the next business day.

2.07          Any references herein to any law, by-law, rule, regulation, order or act of any
government, governmental body or other regulatory body shall be construed as a reference
thereto as amended or re-enacted from time to time or as a reference to any successor thereto.

III.          TERMINATION OF PRIOR AGREEMENTS

3.01           All agreements between some or all of the parties hereto regarding the
organization and affairs of the Company or the sale of any Shareholder's Shares in the capital of
the Company under certain circumstances, whether written or oral are hereby terminated.

IV.           WARRANTIES AND COVENANTS

4.01          Each Shareholder warrants as follows:

       A.     that he or she is the registered and beneficial owner of that number and class of
              the issued and outstanding Shares in the capital stock of the Company set out
              opposite his or her name in Schedule "A" annexed hereto, as amended, modified
              or updated from time to time; and

       B.     the Shares set out opposite his or name are free and clear of all claims, liens and
              encumbrances whatsoever and no person, firm, company, partnership, trust or
              other entity has any agreement or option or right capable of becoming an
              agreement for the purchase of any such Shares.

4.02          The Company warrants as follows:

       A.     the authorized capital stock of the Company consists of an unlimited number of
              ______________ ( ) shares;

       B.     the Shares listed opposite each Shareholder's name on Schedule "A" annexed
              hereto are the only issued and outstanding Shares in the capital stock of the
              Company; and

       C.     no person, firm, company, partnership, trust or other entity other than the parties
              hereto has any agreement or option or right capable of becoming an agreement for
              the purchase, subscription or issuance of any of the unissued Shares in the capital
              stock of the Company.

V.            PROVISIONS FOR CONTROL
5.01            The Shareholders shall cause such meetings of the Company to be held, votes
cast, resolutions passed, by-laws enacted, documents executed and all things and acts done or
ensure the following continuing arrangements with respect to the operation and control of the
Company:

       A.     The affairs of the Company shall be managed by a Board of Directors which
              shall, unless increased pursuant to the provisions of subparagraph 5.01(j) hereof,
              consist of _______ (___) directors elected by the Shareholders;

       B.     So long as __________, _____________, ___________ and _____________ are
              Shareholders of the Company, are not incapacitated (as provided in paragraph
              8.02 hereof) and are not deceased, the Shareholders agree to elect ___________,
              ____________, ___________ and ___________ as directors of the Company;

       C.     The Shareholders, other than ___________, _________, _________ and
              ___________ (and/or any Company which is a Shareholder of which they are the
              Controlling Shareholder) shall be entitled to elect one (1) director of the
              Company;

       D.     Should any vacancy occur on the Board of Directors, such vacancy shall be filled
              forthwith by the election of a new director by the Shareholders at a special
              meeting of the Shareholders called for that purpose. Until such vacancy is filled,
              the Board of Directors shall not transact any business or exercise any of its
              powers or functions, save and except as may be necessary to elect such new
              director or preserve the business and assets of the Company;

       E.     The officers of the Company shall be appointed from time to time by the Board of
              Directors as they shall determine;

       F.     Notwithstanding anything contained in the by-laws of the Company from time to
              time, a quorum for a meeting of the Board of Directors shall be __________ of
              the Directors;

       G.     Notwithstanding anything contained in the by-laws of the Company from time to
              time, a quorum for a meeting of the Shareholders shall be _______ (__)
              Shareholders, present or represented by proxy, holding Shares representing at
              least _______ (___%) per cent of the outstanding Shares in the capital stock of the
              Company

       H.     Except as may be otherwise provided in this Agreement, all decisions of the
              Board of Directors and of the Shareholders of the Company shall be decided by a
              majority of votes cast, (or by such greater percentage as may be required by law),
              but in no event shall the Chairman of such meeting have a second or casting vote.
              Notwithstanding the foregoing, a resolution in writing signed by all of the
              directors or Shareholders, as the case may be, entitled to vote on that resolution at
              a meeting of the Board of Directors or the Shareholders, as the case may be, is as
              valid as if it had been passed at a meeting of the Board of Directors or the
              Shareholders, as the case may be;

       I.     All contracts and documents binding the Company shall require the signatures of
              those individuals determined by the Board of Directors from time to time.

       J.     Notwithstanding anything contained in the incorporating documents of the
              Company and except to the extent specifically contemplated or provided for in
              this Agreement, no decision or action shall be taken by the Company in respect of
              the following matters unless authorized by the holders of at least _____________
              (___%) per cent of the Shares then outstanding:

              (i)     the declaration of any dividend;

              (ii)    the issuance or sale by the Company of any of its Common Shares;

              (iii)   the redemption or purchase by the Company of any of its Common Shares;

              (vi)    increasing the number of directors to be elected to the Board of Directors
                      within the minimum and maximum number of directors permitted by the
                      incorporating documents of the Company, as amended from time to time;

              (v)     the making of any contract of employment between the Company and any
                      of the Shareholders and/or any person not dealing at arm's length with any
                      of the Shareholders;

              (ix)    the expenditure of any amount with respect to any single matter in excess
                      of ______________ ($_______) Dollars, but less than ___________
                      ($_______) Dollars;

5.02           No Shareholder shall, without the prior written consent of all other Shareholders,
disclose or communicate to any person any of the technology, know-how or other trade secrets or
knowledge relating to the business of the Company acquired by that Shareholder by virtue of his
association with the Company and no Shareholder shall, without the prior written consent of all
other Shareholders, deal with any of the Company's customers or suppliers in competition with
the Company nor shall he solicit or permit the solicitation of any business from any such
customers or suppliers, nor shall he divulge the names, addresses or any information about any
such customers or suppliers.

VI.    PURCHASE OF SHARES FOR INVESTMENT

6.01 The Shareholders of the Company represent and warrant that they have acquired their
respect Shares for their own investment purposes and not with a view to resell the Shares for the
purposes of any distribution.

VII.   TRANSFER OF SHARES OF THE COMPANY
7.01 The Shareholders of the Company are prohibited from transferring, selling, pledging,
assigning or encumbering or disposing of their respective Shares except as pursuant to the terms
and conditions of this Agreement.

7.02 The Shareholders of the Company may, upon agreement with the Board of Directors of
the Company, sell, transfer, assign or dispose of their respective Shares for such a consideration
and on such terms and conditions as agreed upon.

7.03 Pursuant to the terms and conditions contain herein, the Shareholders of the Company
may sell, transfer, assign or dispose of their respective Shares pursuant to a bona fide offer to
purchase such Shares and after compliance by such Shareholder or Shareholders of the following
provisions:

       A.      a Shareholder of the Company wishing to dispose of their respect Shares shall
               provide written notice to the Company and the other remaining Shareholders of
               their intention to dispose of such shares, together with the class of Shares to be
               disposed and the number of Shares to be disposed and shall provide to the
               Company a copy of the offer to purchase;

       B.      upon the Company receiving such notice from a Shareholder or Shareholder of
               the Company, the Company shall have the exclusive right to purchase all of the
               Shares being offered by the Shareholder at the proposed purchase price for such
               Shares;

       C.      should the Company desire to purchase such Shares, the Company shall give
               notice of its intent to purchase the Shares to the Shareholder by written notice
               within ____ (___) days’ of receiving such notice from a Shareholder or
               Shareholders;

       D.      in the event the Company purchases the Shares from the Shareholder or
               Shareholders, such Shareholder or Shareholders shall deliver to the Company the
               share certificates representing such Shares being disposed of by the Shareholder;

       E.      the Shareholder or Shareholders disposing of such Shares, shall deliver the share
               certificates representing such Shares to the Company free and clear from any
               encumbrances or liens;

       F.      in the event the Company is not desirous of purchasing such Shares, the
               remaining Shareholders of the Company shall have the right to purchase such
               Shares at the purchase price, by providing written notice to the Shareholder
               disposing of such Shares indicating that Shareholder’s or Shareholders’ desire to
               purchase the Shares;

       G.      should the remaining Shareholders of the Company desire to purchase such
               Shares, the remaining Shareholders shall purchase the Shares in such proportion
               as they agree or pro rate in accordance with their proportionate shareholdings in
               the capital stock of the Company;

       H.      the Shareholder or Shareholders disposing of such Shares, shall deliver the share
               certificates representing such Shares to the remaining Shareholders free and clear
               from any encumbrances or liens;

       I.      in the event that the Company or the remaining Shareholders are not desirous of
               purchasing such Shares from the Shareholder, such Shareholder may accept the
               offer to purchase the Share and shall provide the Company with written notice of
               the Shareholders acceptance of such offer to purchase, provided that any
               transferee of such Shares shall be bound to the terms and conditions of this
               Agreement, as if such transferee was an original party to this Agreement;

7.04       The Shareholders of the Company may transfer all of their Shares owned in the capital
stock of the Company to their respective spouses or family member, provided that prior to such
transfer the Company and all of its Shareholders amend this Agreement to the reasonable
satisfaction of such transferee, the Company and all the Shareholders to provide the parties to
this Agreement with the rights, remedies and effect provided in this Agreement as if no such
transfer had occurred, and the proposed transferee agrees in a writing satisfactory to the
Company and its Shareholders that such transferee shall vote for ___________, _________ and
_____________ or their respective nominees, as directors of the Company in accordance with
terms and conditions of this Agreement and the transferee agrees to be bound by all the terms
and conditions of this Agreement.

VIII. RIGHT OF FIRST REFUSAL

8.01             Subject to any other provisions of this Agreement affecting the purchase and sale
of Shares, any Shareholder (the "selling party") may at any time by written notice (the "Offer")
offer to sell all of his or her Shares or any number of his Shares (the "interest") to the remaining
Shareholders specifying in the Offer:

       A.      the cash price per Share of each Share included in the interest;

       B.      the time within which the Offer, if not accepted, will be deemed to be declined (to
               be not less than fifteen (15) days nor more than thirty (30) days after receipt of the
               Offer);

       C.      the proposed closing date (to be not less than forty-five (45) days nor more than
               sixty (60) days after receipt of the Offer); and

       D.      a copy of any outside offer received by the selling party for the purchase of the
               interest which outside offer shall not contain terms less favorable to the selling
               party than those contained in the Offer.
For the purposes of this Article VIII and its subsections, an "outside offer" means a written
unconditional offer for the purchase of all or any of the Shares registered in the name of the
selling party made by a party other than an existing Shareholder, which offer the selling party is
inclined to accept.

8.02           If the Offer is accepted by the remaining Shareholders, then the selling party shall
sell and the remaining Shareholders shall purchase the interest upon the terms and conditions
contained in the Offer. The remaining Shareholders shall determine in their sole discretion the
proportions in which they shall purchase the interest but in no event shall the remaining
Shareholders accept the Offer unless the remaining Shareholders have determined to purchase
the whole of the interest.

8.03             If, after the time set for acceptance of the Offer the remaining Shareholders shall
not have accepted the Offer, then subject to paragraph 8.04 hereof, the selling party shall be
entitled to sell the interest in accordance with the outside offer. Before consenting to the transfer
of the Shares subject to the interest, the Board of Directors shall be entitled to require proof that
the sale took place in accordance with either the Offer or the outside offer, as the case may be,
and the Board of Directors shall refuse to permit the recording of the transfer of the interest
which may have been sold otherwise than in accordance with the provisions of this Agreement.

8.04           If a sale of the interest is not completed within sixty (60) days of the receipt of the
Offer, no sale of the interest shall be made without the selling party again complying with the
terms of this Article VII and its subsections.

8.05            Notwithstanding the foregoing, no disposition pursuant to the outside offer shall
be valid or effective until the acquirer of the Shares in question shall have entered into an
agreement with the other parties hereto consenting to the terms hereof and agreeing to assume all
of the obligations of the selling party as though such acquirer were the selling party, in which
event such acquirer shall be entitled to all of the rights and be subject to all of the obligations on
the part of the selling party herein, mutatis mutandis.

IX.    DEATH OR INCAPACITY OF SHAREHOLDER

9.01           For the purposes of this Article, the death or incapacity, as hereinafter provided,
of a Controlling Shareholder shall be deemed to be the death or incapacity of the Company
which the Controlling Shareholder either directly or indirectly controlled and the provisions of
this Article shall apply, mutatis mutandis, as if that company were a deceased or incapacitated
Shareholder, as the case may be. For the purposes of this Article, Shareholder shall include
Controlling Shareholder.

9.02            In the event that any Shareholder dies, or shall be adjudged mentally incompetent
and shall have a committee or other legal representative appointed to administer his or her
affairs, the Company may at its option redeem or purchase for cancellation within One Hundred
and Eighty (180) days of the date of death or such judgment, all of the Shares of any class
registered in the name of such Shareholder at their fair market value at such date, provided that
the Company’s rights described in this paragraph 9.02 may only be exercised by written notice
delivered to the appropriate party within Sixty (60) days of the date of death or judgment, as the
case may be, and in the event of such notice the Company shall redeem or purchase and the legal
representative or committee shall sell all of such Shares on the date specified in writing by the
Company in its notice, failing which specification the purchase and sale shall be completed on
the One Hundred and Eightieth (180th) day following the date of death or such judgment, as the
case may be.

9.03           The purchase price for such Shares shall be paid in full by cash or by certified
check or bank draft at the time of closing, or, if the Company so elects, shall be payable as to
________ (___%) per cent thereof by cash and as to _________ (___%) per cent thereof by
promissory note with interest thereon at the prime bank rate and repayable in equal blended
monthly installments of principal and interest over a period of _______ (__) years.

9.04            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 this Article IX and its subsections. If the Company exercises its option to
purchase the Shares of a Shareholder who has died, then any proceeds so obtained by the
Company from such life insurance contracts upon the death of such Shareholder shall be used by
the Company to purchase, in whole or in part as such proceeds may be available, the Shares
owned by such Shareholder and any balance of such proceeds shall be retained for the sole
benefit of the Company.

9.05           In the event that there are no life insurance proceeds payable to the Company
upon the death of any Shareholder, the Company may, at its sole option, elect to assign to the
remaining Shareholders its option to purchase the Shares registered in the name of such
Shareholder upon the same terms and conditions as specified in paragraphs 9.02 and 9.03 hereof.
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 such
proportions as they shall in their sole discretion determine.

X.     BANKRUPTCY OR OTHER INVOLUNTARY TRANSFER

10.01           In the event of the bankruptcy of any Shareholder or of 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 being herein called the "involuntary transferee", the
bankrupt Shareholder or the Shareholder whose interest passes to the involuntary transferee
being herein called the "debtor party"), the Company shall have the option to purchase all but not
less than all of the Shares of the debtor party by giving written notice of its election to purchase
the same within ninety (90) days after such bankruptcy shall have been adjudicated or such
transfer shall have occurred at a price equal to __________ (___%) per cent of the fair market
value of such Shares.

10.02           The purchase price for the Shares of the debtor party shall be paid within sixty
(60) days after the delivery of notice pursuant to paragraph 10.01 hereof by the 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 sale and if he shall fail or refuse to do so, the Secretary of the Company is irrevocably
constituted and appointed the attorney of the debtor party to effect such execution.

10.03            The Company may, at its sole option, elect to assign to the remaining
Shareholders its option to purchase the Shares from the involuntary transferee upon the same
terms and conditions as specified in paragraphs 10.01 and 10.02 hereof. 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 such proportion as they
shall in their sole discretion determine.

XI.    GENERAL PROVISIONS FOR PURCHASE AND SALE OF SHARES

11.01           In the event of the sale by any Shareholder or his or her legal representative
(collectively, the "selling Shareholder") of his or her Shares pursuant to the provisions of this
Agreement:

       A.     if the Shares to be sold are all of the Shares then held by the selling Shareholder,
              the Company shall use its best efforts to obtain a release of the selling
              Shareholder from any guarantees and covenants which he or she has given on
              behalf of the Company and shall indemnify the selling Shareholder with respect to
              any claims for which such a release cannot be obtained;

       B.     if the Shares to be sold are all of the Shares then held by the selling Shareholder,
              the selling Shareholder shall deliver a release from any and all claims which he or
              may have against the Company or the remaining Shareholders;

       C.     certificates representing the Shares to be sold shall be delivered to the purchaser
              duly endorsed in blank for transfer, and the selling Shareholder shall also deliver
              to the purchaser original executed copies of all documents as may be required to
              effect the transfer including, without limitation, succession duty releases, letters
              probate and declarations of transmission, and shall deliver to the Company a
              certified check representing payment in full of all amounts owed by the selling
              Shareholder to the Company, all against delivery to the selling Shareholder of the
              checks described in sub-paragraph (e) hereof;

       D.     such sale shall be on terms whereby the selling Shareholder warrants that: (i) he
              or she has good marketable title to the Shares to be sold free 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) he or she has full power and
              authority to complete, and is otherwise fully entitled to complete, the sale; and

       E.     the purchaser shall deliver to the selling Shareholder by cash, certified check or
              bank draft the purchase price and the Company shall deliver to the selling
               Shareholder a certified check for all amounts owing by the Company to the
               selling Shareholder.

11.02           In no event shall any purchaser be entitled to or obliged to purchase a fraction of a
share. In order to eliminate fractions, the Secretary of the Company shall make such minimum
alterations to the number of Shares agreed to be purchased as may be required to eliminate such
fractions and his or her decision shall be final and binding upon all parties.

11.03           In the event that a selling Shareholder shall fail to comply with the provisions of
sub-paragraph 11.01(C) hereof, and all conditions of such paragraph to be met by the purchaser
and the remaining Shareholders shall have been met, the selling Shareholder hereby irrevocably
appoints the Secretary of the Company or his or her attorney to effect the transfer of the Shares
to be sold on the books of the Company.

XII.     GENERAL PROVISIONS

12.01     In the event that the Company shall register or qualify any or all of the common Shares
in the capital stock of the Company under the Securities Act of 1933, as amended (or any similar
statute then in force), on an appropriate registration statement, the Company shall give the
Shareholders written notice thereof, and upon written request of a Shareholder, received by the
Company not later than fifteen (15) days after receipt by the Shareholder of such notice, the
Company will include in the registration statement filed by the Company with the Securities and
Exchange Commission all Shares held by such Shareholder with respect to which the
Shareholder shall have so requested registration.

12.02     Each person who now or hereafter acquires any legal or equitable interest in any Shares
shall be bound by the terms of this Agreement. No issuance or transfer of Shares shall be
effective and the Company shall not enter any issue or transfer upon the books of the Company
or issue a certificate in the name of any person unless the Company is satisfied that such person
is, and in a manner satisfactory to the Company has acknowledged being, bound by this
Agreement.

12.03     Except as otherwise agreed to or expressly provided for herein, closing pursuant to the
exercise of a right to purchase or sell Shares pursuant to this Agreement shall be held at the
principal executive offices of the Company.

12.04     The following legend shall he immediately entered on each share certificate
representing Shares owned by the Shareholders:

         "The gift, sale, mortgage, pledge, hypothecation or other encumbering or transfer of the
         shares of the capital stock represented by this certificate is restricted in accordance with
         the terms and conditions of a Shareholders Agreement dated the ____ day of
         _______, 2_____, a copy of which is on file at the registered head office of the
         Company. The said Shareholders Agreement restricts the ability of the Shareholder to
         sell, give, pledge, bequeath or otherwise transfer or dispose of this share certificate and
         the shares in the capital stock represented by it."
12.05    The terms and conditions of this Agreement shall specifically apply not only to Shares
owned by Shareholders at the time of execution of this Agreement, but also to any Shares
acquired by any Shareholder subsequent to such execution.

12.06     At each election of the Board of Directors of the Company, the Shareholders shall vote
their Shares to elect three (3) directors of the Company, one director being ________, or his or
her nominee, one director being ____________, or his or her nominee, and one director being
__________, or his or her nominee.

12.07    Any purchase of the Shares of a Shareholder pursuant to any provision of this
Agreement shall include without limitation or condition the entire marital property interest of the
spouse of such Shareholder in the Shares being purchased.

12.08     The Company may elect to be taxed as a small business company under Subchapter S
of the Internal Revenue Code, as amended from time to time (the "Code"), or such other
provisions of law as may hereafter be applicable to such an election, and for State Income Tax
purposes, if available (hereinafter, an "Election"). Each Shareholder and the Company agree to
execute and file the necessary forms for making and maintaining an Election, and each
Shareholder agrees to deliver to the Company the consent of the spouse of such Shareholder if
such consent is required for the Election under any community or marital property laws or
otherwise. The Shareholders and the Company agree that they will take such other actions as
may be deemed necessary or advisable by counsel to the Company to exercise or maintain the
Election. The Shareholders shall maintain the Election unless the Management Shareholders
unanimously agree otherwise or in the event that the Board of Directors requests that the
Shareholders revoke the Election, in which case the Shareholders shall promptly execute and
deliver to the Company such documents as may be necessary to revoke the Election. None of the
Shareholders, without the consent of all of the Controlling Shareholders, shall take any action or
position, or make any transfer or other disposition of his or her shares of the Company which
may result in the termination or revocation of the Election. In the event of an inadvertent
termination of the Election as described in Section 1362(f) of the Code or other applicable law,
the Shareholders shall agree to make such adjustments as may be required to continue the
Election, as provided in Section 1362(f)(4) of the Code or other applicable law.

12.09     The Company is duly authorized to enter into this Agreement by way of a resolution
passed at a meeting of the Board of Directors.

12.10     Notices and declarations under this Agreement shall be in writing and sent by
registered or certified mail, return receipt requested, postage paid, to the Company at its
registered office address and to the Shareholders at their last address as shown on the records of
the Company or at such other address with respect to any party hereto as such party shall notify
the other Shareholders and the Company in writing in the manner specified herein. [Instruction:
The parties may agree to notice by facsimile or electronic mail. In said event, a Schedule of
all facsimile or email addresses should be attached to this Agreement].
12.11     The rights and obligations of the Company and the Shareholders under this Agreement
shall terminate upon written agreement of all then existing Shareholders or upon the registration
or qualification of any or all of the common shares of the Company.

12.12    The various provisions of this Agreement are severable from each other and from the
other provisions of the Agreement, and in the event that any provision in this Agreement shall be
held to be invalid or unenforceable by a court of competent jurisdiction, the remainder of this
Agreement shall be fully effective, operative and enforceable.

12.13     This Agreement shall be binding upon and inure to the benefit of the parties hereto and
their respective heirs, personal representatives, executors, administrators, successors and assigns.

12.14 This Agreement shall be governed by and construed in accordance with the laws of the State
of ___________________. Each of the parties in any suit, action or proceeding arising out of or
relating to this Agreement, irrevocably (i) submits to the jurisdiction of the State Courts of the
State of _______ and the United States District Court for the district of ______________over
any suit, action or proceeding arising out of or relating to this Agreement, (ii) waives to the
fullest extent enforceable under applicable law any objection which it may now or hereafter have
to the above venue of any such suit, action or proceeding and any claim that any such suit, action
or proceeding brought in such Court has been brought in an inconvenient forum, (iii) waives to
the fullest extent enforceable under applicable law any objection which it may now or hereafter
have to the above mentioned Court having jurisdiction of the parties hereto and to the subject
matter of this Agreement, and (iv) acknowledges that a final judgment in any such suit, action or
proceeding brought in such Court, after all appropriate appeals, shall be conclusive and binding
upon it. In any suit or arbitration regarding the Agreement, the prevailing party shall be entitled
to reasonable attorneys’ fees and costs. In any suit or arbitration regarding the Agreement, the
prevailing party shall be entitled to reasonable attorneys’ fees and costs.

12.15  This Agreement may be changed only by an agreement in writing signed by the
Company and all Shareholders of the Company.

12.16   This Agreement may be executed in one or more counterparts each of which shall be
deemed an original and all of which together shall be deemed to be one and the same instrument.

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

                                                     (COMPANY)


                                                     __________________________________
                                                     Name:
                                                     Title:

[Instruction: Each Shareholder of the Company should execute this Agreement]


____________________
Name:

____________________
Name:
SCHEDULE "A"


Name           Address   Number and Class of Shares Held

				
DOCUMENT INFO
Description: This is an agreement among the shareholders of an S Corporation. S Corporations are particularly beneficial because they do not pay federal income tax. Rather, the corporation’s profits and losses are passed through to the shareholders that must report the income on their individual tax returns. For a business to be qualified for S Corporation status, they must have one class of stock and less than 100 shareholders. This agreement sets out the rights and responsibilities of each shareholder pertaining to the sale of shares, termination, and shareholder deaths. This agreement should be used by small businesses or other entities that qualify as S Corporations and want a sample shareholders agreement.
This document is also part of a package Business Incorporation Starter Kit 19 Documents Included