The Shareholders’ Agreement

It’s no secret that the foundation of a business is its biggest ally and staunchest defender, in times of crisis. A big part of that is the quality and commitment of the shareholders that buy into the company. This relationship between business and shareholder can be mutually beneficial when started off right.

What’s in a Shareholders’ Agreement?

A shareholders’ agreement is intended for legal and structural reasons. The side-effect of a well-outlined shareholders’ agreement, of course, is that it can anticipate change and respond to the needs of the company as well as those buying into it. In the best case, this agreement can help incentivize investors. The document should include clauses and sections outlining the structure of the business, management of the corporation, procedural matters, covenants, and details on the divvying up and distribution of shares, directly tied into voting rights.

Creating An Organizational Structure For the Future

Think of the shareholders’ agreement as a key document in keeping the corporation functioning as a democracy, wherein those with the most risk have the most “say” or leverage. It’s thus based on a system of fairness and balance, in theory. But the shareholders’ agreement does not only outline benefits and privileges but, also, the direct reporting structure of the company. Who is responsible for which aspect and who reports to whom as a fail-safe? This system of checks and balances also responsibly outlines the procedures of a dissolution, divestment, merger or acquisition.

Of course, in an agreement for startups, the organizational structure, types of shares, the allocations and management types are prone to change. One only has to look at Uber’s example to see that “super-voting shares” were introduced later on, as the company grew. These were intended to keep the direction of the business and company firmly in the hands of the founders, rather than the CEOs and avoid risking the founder’s loss of their “baby” to the company. In the case for growth and change, it is the procedural matters outlined in the agreement that can tell the company how to proceed with this change.