Welch Capital Partners' "Topics of Discussion for the Shareholders Agreement" provides a comprehensive overview of key elements to address in a shareholders' agreement. It covers crucial topics like board composition, voting rights, dividend policies, share transfer restrictions, management roles, financial controls, and dispute resolution. The guide emphasizes the importance of setting clear terms for exit strategies, confidentiality, non-compete clauses, and the protection of minority shareholders, ensuring that all shareholders are aligned and protected throughout the business lifecycle.
Topics of Discussion
1. Board Composition and Decision-making
- Board of Directors: Define the composition of the board, how directors are appointed, and the length of their terms.
- Voting Rights: Specify the voting rights of directors, including any special majority or unanimous consent required for certain decisions.
- Meetings: Set the frequency of board meetings and procedures for calling meetings.
- Reserved Matters: Identify key decisions that require a higher threshold of approval (e.g., significant investments, changes in business strategy, mergers, or acquisitions).
2. Shareholder Meetings and Voting
- Annual General Meetings: Outline the schedule and conduct of annual and extraordinary general meetings.
- Quorum Requirements: Establish quorum requirements for meetings to ensure decisions are made with sufficient representation.
- Voting Rights: Detail how votes are counted and whether any shareholders have special voting rights.
3. Dividend Policy
- Profit Distribution: Define the policy for distributing profits as dividends.
- Reinvestment: Establish guidelines on the reinvestment of profits into the business.
4. Financing and Capital Contributions
- Initial Contributions: Specify the initial capital contributions of each shareholder.
- Future Financing: Outline the process for future capital contributions, including the issuance of new shares and rights of pre-emption.
5. Transfer of Shares
- Restrictions on Transfer: Set conditions under which shares can be transferred, including any rights of first refusal or buy-back provisions.
- Drag-Along and Tag-Along Rights: Ensure minority shareholders are protected in the event of a sale (tag-along) and that majority shareholders can compel minority shareholders to join in a sale (drag-along).
6. Management and Operational Control
- Roles and Responsibilities: Define the roles and responsibilities of key management positions.
- Decision-Making Authority: Clarify the decision-making authority of shareholders versus directors versus management.
- Day-to-Day Operations: Provide guidelines on the day-to-day management and operational decisions.
7. Budgeting and Financial Controls
- Budget Approval: Specify the process for creating and approving annual budgets.
- Financial Reporting: Establish requirements for regular financial reporting and auditing.
- Expenditure Limits: Define limits on spending without shareholder or board approval.
8. Dispute Resolution
- Mediation and Arbitration: Include provisions for resolving disputes through mediation and arbitration before pursuing litigation.
- Deadlock Provisions: Set mechanisms for resolving deadlocks, such as buy-sell agreements or third-party intervention.
9. Exit Strategy
- Sale of Business: Outline procedures for selling the business or winding up operations.
- Exit Mechanisms: Provide options for shareholders to exit the business, including buy-sell agreements, put and call options, or mandatory buyout provisions.
10. Confidentiality and Non-Compete Clauses
- Confidentiality: Include clauses to protect the confidentiality of business information.
- Non-Compete: Set non-compete terms to prevent shareholders from engaging in competitive businesses.
11. Amendments to the Agreement
- Modification Process: Define how the shareholders' agreement can be amended, typically requiring a supermajority or unanimous consent.
12. Minority Protection Clauses
- Veto Rights: Grant minority shareholders veto rights on certain critical issues.
- Information Rights: Ensure minority shareholders have access to sufficient information to monitor their investment.
- Protection Against Dilution: Include anti-dilution provisions to protect minority shareholders from future share issuances that could dilute their ownership percentage.
13. Put and Call Options
Put Option
A put option gives a shareholder the right to sell their shares to other shareholders or the company at a predetermined price or formula.
Clause Example:
Put Option:
- Right to Sell: Any shareholder ("Selling Shareholder") may, at any time after [specific event or date], exercise their right to sell all or part of their shares ("Put Shares") to [the company/other shareholders] by delivering a written notice ("Put Notice") to [the company/other shareholders].
- Exercise Price: The price per share at which the Put Shares will be sold ("Put Price") shall be determined by [a predetermined formula, fair market value as determined by an independent valuer, or another agreed method].
- Completion of Sale: The sale and purchase of the Put Shares shall be completed within [a specified period, e.g., 30 days] from the date of the Put Notice.
- Payment Terms: The Put Price shall be paid in [cash/installments/other agreed method] on the completion date of the sale.
Call Option
A call option gives a shareholder or the company the right to buy shares from other shareholders under specified conditions.
Clause Example:
Call Option:
- Right to Buy: [The company/any shareholder] ("Buyer") may, at any time after [specific event or date], exercise their right to purchase all or part of the shares held by another shareholder ("Call Shares") by delivering a written notice ("Call Notice") to the shareholder holding the Call Shares ("Selling Shareholder").
- Exercise Price: The price per share at which the Call Shares will be bought ("Call Price") shall be determined by [a predetermined formula, fair market value as determined by an independent valuer, or another agreed method].
- Completion of Purchase: The purchase of the Call Shares shall be completed within [a specified period, e.g., 30 days] from the date of the Call Notice.
- Payment Terms: The Call Price shall be paid in [cash/installments/other agreed method] on the completion date of the purchase.
Please contact Stephan May to learn more about shareholders agreement topics.
Welch Capital Partners' "Topics of Discussion for the Shareholders Agreement" provides a comprehensive overview of key elements to address in a shareholders' agreement. It covers crucial topics like board composition, voting rights, dividend policies, share transfer restrictions, management roles, financial controls, and dispute resolution. The guide emphasizes the importance of setting clear terms for exit strategies, confidentiality, non-compete clauses, and the protection of minority shareholders, ensuring that all shareholders are aligned and protected throughout the business lifecycle.
Topics of Discussion
1. Board Composition and Decision-making
- Board of Directors: Define the composition of the board, how directors are appointed, and the length of their terms.
- Voting Rights: Specify the voting rights of directors, including any special majority or unanimous consent required for certain decisions.
- Meetings: Set the frequency of board meetings and procedures for calling meetings.
- Reserved Matters: Identify key decisions that require a higher threshold of approval (e.g., significant investments, changes in business strategy, mergers, or acquisitions).
2. Shareholder Meetings and Voting
- Annual General Meetings: Outline the schedule and conduct of annual and extraordinary general meetings.
- Quorum Requirements: Establish quorum requirements for meetings to ensure decisions are made with sufficient representation.
- Voting Rights: Detail how votes are counted and whether any shareholders have special voting rights.
3. Dividend Policy
- Profit Distribution: Define the policy for distributing profits as dividends.
- Reinvestment: Establish guidelines on the reinvestment of profits into the business.
4. Financing and Capital Contributions
- Initial Contributions: Specify the initial capital contributions of each shareholder.
- Future Financing: Outline the process for future capital contributions, including the issuance of new shares and rights of pre-emption.
5. Transfer of Shares
- Restrictions on Transfer: Set conditions under which shares can be transferred, including any rights of first refusal or buy-back provisions.
- Drag-Along and Tag-Along Rights: Ensure minority shareholders are protected in the event of a sale (tag-along) and that majority shareholders can compel minority shareholders to join in a sale (drag-along).
6. Management and Operational Control
- Roles and Responsibilities: Define the roles and responsibilities of key management positions.
- Decision-Making Authority: Clarify the decision-making authority of shareholders versus directors versus management.
- Day-to-Day Operations: Provide guidelines on the day-to-day management and operational decisions.
7. Budgeting and Financial Controls
- Budget Approval: Specify the process for creating and approving annual budgets.
- Financial Reporting: Establish requirements for regular financial reporting and auditing.
- Expenditure Limits: Define limits on spending without shareholder or board approval.
8. Dispute Resolution
- Mediation and Arbitration: Include provisions for resolving disputes through mediation and arbitration before pursuing litigation.
- Deadlock Provisions: Set mechanisms for resolving deadlocks, such as buy-sell agreements or third-party intervention.
9. Exit Strategy
- Sale of Business: Outline procedures for selling the business or winding up operations.
- Exit Mechanisms: Provide options for shareholders to exit the business, including buy-sell agreements, put and call options, or mandatory buyout provisions.
10. Confidentiality and Non-Compete Clauses
- Confidentiality: Include clauses to protect the confidentiality of business information.
- Non-Compete: Set non-compete terms to prevent shareholders from engaging in competitive businesses.
11. Amendments to the Agreement
- Modification Process: Define how the shareholders' agreement can be amended, typically requiring a supermajority or unanimous consent.
12. Minority Protection Clauses
- Veto Rights: Grant minority shareholders veto rights on certain critical issues.
- Information Rights: Ensure minority shareholders have access to sufficient information to monitor their investment.
- Protection Against Dilution: Include anti-dilution provisions to protect minority shareholders from future share issuances that could dilute their ownership percentage.
13. Put and Call Options
Put Option
A put option gives a shareholder the right to sell their shares to other shareholders or the company at a predetermined price or formula.
Clause Example:
Put Option:
- Right to Sell: Any shareholder ("Selling Shareholder") may, at any time after [specific event or date], exercise their right to sell all or part of their shares ("Put Shares") to [the company/other shareholders] by delivering a written notice ("Put Notice") to [the company/other shareholders].
- Exercise Price: The price per share at which the Put Shares will be sold ("Put Price") shall be determined by [a predetermined formula, fair market value as determined by an independent valuer, or another agreed method].
- Completion of Sale: The sale and purchase of the Put Shares shall be completed within [a specified period, e.g., 30 days] from the date of the Put Notice.
- Payment Terms: The Put Price shall be paid in [cash/installments/other agreed method] on the completion date of the sale.
Call Option
A call option gives a shareholder or the company the right to buy shares from other shareholders under specified conditions.
Clause Example:
Call Option:
- Right to Buy: [The company/any shareholder] ("Buyer") may, at any time after [specific event or date], exercise their right to purchase all or part of the shares held by another shareholder ("Call Shares") by delivering a written notice ("Call Notice") to the shareholder holding the Call Shares ("Selling Shareholder").
- Exercise Price: The price per share at which the Call Shares will be bought ("Call Price") shall be determined by [a predetermined formula, fair market value as determined by an independent valuer, or another agreed method].
- Completion of Purchase: The purchase of the Call Shares shall be completed within [a specified period, e.g., 30 days] from the date of the Call Notice.
- Payment Terms: The Call Price shall be paid in [cash/installments/other agreed method] on the completion date of the purchase.
Please contact Stephan May to learn more about shareholders agreement topics.
