Shareholders agreements have a host of provisions focused on (a) who makes decisions relating to the management and operations of the company, and (b) how shares can be transferred, distributed, and sold.
Shareholders agreements will also set out the rights, roles duties and responsibilities of the directors and officers, create options to buy or sell shares, determine what will happen in the case of death or retirement of a shareholder, establish the number of directors on the board and their duties, and provide existing shareholders with the right to approve future shareholders.
While directors of the corporation generally are invested with the power to resolve disputes, a “unanimous shareholders agreement” is one that is shared among all the shareholders, which will restrict the powers of the directors to manage and operate the corporation and will stipulate the procedures for how shareholders will settle disagreements.
Private equity investors are high net worth individuals who invest in private equity corporations in exchange for shares. The company, thereby, is able to raise additional capital, while the private equity investor hopes to make a financial return. Because of their financial clout, private equity investor hold substantial powers relating to the operation of the corporation, including when the private equity investor will exit to maximize profit through the selling of shares; rights to appoint and remove directors of the Board; control of the sale and transfers of shares; control to borrow or issue dividends; protection of intellectual property and restrictions on competition if founders leave; and disclosures (warranties) that reveal any financial obligations to third parties.
A minority shareholder owns less than half of a company. As a result, if a dispute arises over the sale or distribution of assets, or another issue requiring shareholder votes, a minority shareholder doesn’t have voting strength on his own. That being said, a minority shareholder can still ensure certain rights by the inclusion of provisions related to how shares will be distributed and various clauses, such as the right of first refusal, piggy back rights, and pre-emptive rights. See our answer below for more details about these important shareholder clauses.
