Common and recommended shareholder agreement clauses?
I'm a self-funded searcher with a C corp.
As I look at my shareholder agreement, I'm curious what clauses are common for self-funded searchers?
Are there any you recommend including?
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by a searcher
from New York University - Leonard N. Stern School of Business
in Grand Rapids, MI, USA
in Grand Rapids, MI, USA
1yr ago
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by a searcher
1yr ago
from New York University in Grand Rapids, MI, USA
from New York University in Grand Rapids, MI, USA
Thanks, Richard. It's meant to be a generic request to understand what clauses others have in place. Not, "What should I include?"
Drag-along, tag-along, restriction on sale, transfers by common holders, etc...
Drag-along, tag-along, restriction on sale, transfers by common holders, etc...
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by a professional
1yr ago
from Simon Fraser University in London, UK
from Simon Fraser University in London, UK
Hi Daniel. It's highly context dependent. If it's a plain vanilla 50/50 arrangement then the key issue for your as a shareholder would be to focus on making sure you have equal rights as the other shareholder, and that you can't lose these rights without your consent.
This includes voting rights, anti-dilution rights (which protect your 50% voting power if the company needs more equity capital in the future), board appointment rights, etc. If the board is 50/50 there should be a tie break mechanism to prevent a hung board, often that's done by way of giving the Chairman of the board (which only one shareholder will have the right to appoint) a casting vote in the case of a tie or having an odd number of directors with the final director being independent and appointed by the consent of both shareholders.
Some other issues to consider are if you want any veto rights/reserved matters on major decisions which will require consent of both shareholders (e.g. the incurrence of debt above $X) and a dispute resolution mechanism in the case of a deadlock on these reserved matters (e.g. a period where you agree to negotiate with each other to resolve the deadlock, potentially ending with a Russian roulette clause (which I'll let you Google)).
Local state laws of the jurisdiction of incorporation of the LLC will already have default rules for many of these things.
This includes voting rights, anti-dilution rights (which protect your 50% voting power if the company needs more equity capital in the future), board appointment rights, etc. If the board is 50/50 there should be a tie break mechanism to prevent a hung board, often that's done by way of giving the Chairman of the board (which only one shareholder will have the right to appoint) a casting vote in the case of a tie or having an odd number of directors with the final director being independent and appointed by the consent of both shareholders.
Some other issues to consider are if you want any veto rights/reserved matters on major decisions which will require consent of both shareholders (e.g. the incurrence of debt above $X) and a dispute resolution mechanism in the case of a deadlock on these reserved matters (e.g. a period where you agree to negotiate with each other to resolve the deadlock, potentially ending with a Russian roulette clause (which I'll let you Google)).
Local state laws of the jurisdiction of incorporation of the LLC will already have default rules for many of these things.
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