Shareholders Agreement Main Clauses

Despite the benefits of providing equity to founders and employees, problems arise when shareholder relationships break down and people in the company are laid off. In the absence of a valid legal agreement to deal with this event, such “bad leavers” will retain their shares and the other shareholders will remain with Dener Naden, who are now “unlocked” on the path of the actively involved shareholders. Although there are some legal “tricks” that majority shareholders can use to solve this problem (. For example, issuing additional shares to dilute shareholders or selling commercial assets to a new company [2]), they may create grounds for legal action and, ultimately, the company may have difficulty finding additional funds and encouraging the remaining founders and employees to stay with the company. Piggyback rights, also known as “Tag Along” rights, protect minority shareholders in the event of a third-party purchase of shares of a majority shareholder. This allows minority shareholders to sell their shares at the same price and on the same terms if they wish, allowing the transaction to actually come into play. This protects minority shareholders from being in business with an unwanted new co-owner and from accepting less attractive offers if one group wants to sell the business and the other group is not. The drag-along and tag along clauses can help solve this problem and ensure that an agreement can continue. First, Drag-Along`s clauses guarantee that a minimum percentage of shareholders (e.g. B 75% or more) wants to sell their shares to third parties, so that they can force the remaining minority shareholders to sell on the same terms to ensure that the third party can obtain 100% of the shares.

Conversely, Tag Along rights require that a shareholder who sells his shares include other minority shareholders on the same terms. This ensures that these minority shareholders will not be “removed from the agreement.” A shareholder is a person, company or other entity that holds shares in a company. The shareholders` pact defines the rights of shareholders. Among other factors, these rights depend on the class of shares that shareholders own.