Shareholder Agreement
A private contract among shareholders defining their rights, obligations, transfer restrictions, and exit procedures.
What is Shareholder Agreement?
A shareholder agreement is a private contract among a company's shareholders that supplements the corporate charter and bylaws to define the rights, obligations, and protections of shareholders among themselves. Common provisions include transfer restrictions (right of first refusal, drag-along and tag-along rights), anti-dilution protections, board seat entitlements for significant investors, dividend policies, information rights, exit mechanisms (put and call options), and dispute resolution procedures. Shareholder agreements are most commonly used in private companies, joint ventures, and venture capital-backed startups, and their terms typically take precedence over the company's bylaws in the event of a conflict.
Example
Venture capital-backed startups regularly sign investor rights agreements — a form of shareholder agreement — granting lead investors board representation rights, pro-rata rights to participate in future funding rounds, information rights to receive monthly financial statements, and registration rights providing a path to liquidity via a future IPO or secondary offering.