Shareholder agreements explained

A shareholder agreement is a document used to establish guidelines to govern the workings of a company and the relationship between its shareholders.

A shareholder agreement generally targets one or more of the following goals:

• Ensures the ratio of shares between the shareholders can remain constant by preventing third parties from becoming shareholders without the consent of the original shareholders.
• Ensures there will be a market for the company’s shares if one shareholder decides to sell.
• Prevents a minority shareholder from being harmed by the decisions and schemes of a majority shareholder.
• Provides a mechanism for an unhappy shareholder to either be bought out or buy the shares of the other shareholder.
• Determines whether the company and/or shareholder has the right to buy the shares of a deceased shareholder.
• Determines the nature and breadth of the shareholders’ involvement in the administration and management of the corporation.