A shareholder agreement is a contract among a corporation's owners setting out how the company is run, how shares can be transferred, and how disputes and exits are handled.
A shareholder agreement governs the relationship between owners of a corporation. It typically covers share transfer restrictions, what happens on a shareholder's death, disability or departure (buy-sell provisions), how major decisions are made, dividend policy, and how deadlocks or disputes are resolved.
For any company with more than one owner, it is essential protection: it prevents shares ending up in unwanted hands, provides a mechanism and valuation for buying out a departing or deceased owner (often funded by insurance), and reduces the risk of costly disputes. Its terms also interact with tax and estate planning.
Two co-founders sign a shareholder agreement with a buy-sell clause funded by life insurance, so that if one dies, the survivor can buy the deceased's shares from the estate at an agreed valuation without a dispute.
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