The Enforceability and Effectiveness of Typical Shareholders Agreement Provisions

• Published in: The Business Lawyer Vol. 65; no. 4; pp. 1153 - 1203
• Format: Journal Article Trade Publication Article
• Language: English
• Published: Chicago Section of Business Law of the American Bar Association 01.08.2010; American Bar Association
• Subjects: Agreements; Articles of incorporation; Boards of directors; Buy-sell agreements; Closely held corporations; Common stock; Contracts; Corporate bylaws; Corporate regulation; Corporations; Incorporation; Interpretation and construction; Nominations; Shareholder meetings; Shareholders; Shareholders agreement; Shareholders rights; Statutory law; Stockholders; Voting; Voting rights; United States > US
• ISSN: 0007-6899; 2164-1838

Agreements among two or more shareholders of a corporation are commonly used in connection with private equity and venture capital investments, joint ventures, and other corporate transactions. A shareholders agreement typically grants rights to those shareholders who are party to the agreement that are above and beyond the rights that are inherent in the shares that they own, and is intended to ensure that those shareholders obtain the benefits of the additional rights that they bargained for when making their investments. Shareholders agreements are most commonly entered into by shareholders of privately held corporations, so this Report generally discusses agreements among shareholders of a private corporation. Shareholders agreements typically seek to establish the agreed-upon composition of the board of directors and related corporate governance matters. An important corollary to a shareholder's right to designate a director is its right to remove that director and substitute a successor. Removal is also relevant when a shareholder's right to designate a director has terminated pursuant to the terms of the shareholders agreement.