- Length:28 pages (9300 words)
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About this shareholders' agreement
This template is drawn specifically to cover the situation where an external investor introduces money. The transaction is likely to be a loan agreement, supported by a shareholding.
The smaller the proportion of shares, the more important this agreement becomes. It protects and empowers the investor in ways that are fair and that reflect the fact that he, she or it may not be involved in the day to day operation of the business. However, the option of board representation is provided.
This version is also suitable for a situation where the investor has a voting majority but prefers to stay away from day to day management. Other shareholders, who may include the company founders, are not prejudiced.
This agreement is:
- suitable for proprietary companies in any industry in Australia
- with any number of shareholders
- suitable for all stages of the business/investment lifecycle, whether the investor is providing seed capital, venture capital, expansion capital or a MBO
- the company could be a start-up or established
The agreement is not affected by use of different classes of shares, the terms of any loan agreement, use of options, or other structure. Ideally, where a large investment is being made, this agreement would be drawn alongside the other legal documents, such as lending agreements that deal with the investment so that it is in place as soon as the transaction completes.
Note: It is important that the constitution of the company is in terms which permit and support this agreement.
There are specific provisions in this agreement that are not included in other Net Lawman shareholders’ agreements that a business angel or venture capitalist is likely to require. It considers minority shareholders such as company founders still working in the business
Examples are the inclusion of procedure to deal if deadlock occurs, increased reporting and information rights, drag along and tag along rights, and provisions to protect shareholders from dilution of their investment at subsequent financing rounds such as right of first offer.
Standard terms, such as those setting out responsibilities of the directors and the company to shareholders, are of course included.
In many areas, we give you complete alternative paragraphs and explain in the notes when each will be the most suitable for you.
The paragraphs in this document include:
Appointment of directors
Responsibility of directors
Proxy voting of shareholders at meetings
Company's obligations to the shareholders
Additional disclosure and access to information for the investor(s)
Assets introduced by shareholders
Intellectual property introduced by shareholders
Actions requiring shareholder consent
Transfers conditionally permitted
Assets and intellectual property introduced by the investor
Tag along right
Drag along right
Transfers on death or incapacity
Limitation of actions by former shareholder
Dividend policy and procedure
Continuing obligations of shareholders
Conflict with the Constitution
It is a very cost effective way to get a full comprehension of what is required and what to be careful of even if you don't use the document; the information and explanation is invaluable.
Explanation of what each section is for and how to use is good but could still be further improved.
The benefit personally and for the company has been great.
I highly recommend this to start-up companies and others.
My final recommendation to Netlawman is to create a pack of documents for various start-up companies to help navigate all the stuff needed.
Directors Service agreement
and bundle these into a pack....;)