Shareholders' Agreement: How to Structure Entrepreneurial Relationships?

In the often complex world of entrepreneurship and company management, strong agreements among shareholders play a fundamental role in defining the rules of the game. Let's delve into the shareholder agreement, a key element often overlooked when structuring relationships and defining the roles and responsibilities of each party.

Shareholders’ Agreement vs. Founders’ Agreement

A shareholders' agreement establishes the ground rules for stakeholders' interactions. Often confused with founders' agreement, it's essential to understand the distinction:

  • Founders' agreement: Implemented before the formal establishment of the company, this agreement resembles a legal handshake between collaborators embarking on a startup journey. The focus lies on the founders’ relationship and project origins.
  • Shareholders' agreement: Takes effect once the company is officially created, managing share transactions, corporate governance, and shareholder relationships, including potential investors. It primarily focuses on the internal dynamics of the company.
Shareholders' agreement vs. Founders' agreement

What Are the Key Elements of a Shareholders' Agreement?

  1. Transfer of shares: This section establishes rules to oversee the buying and selling of shares, preventing unauthorized acquisitions. It includes several clauses aimed at ensuring this protection, including preemption rights (priority to buy shares), approval rights (required approval for share sales), and buyback options (ability to buy shares from a shareholder).
  2. Corporate Governance: It defines who manages the company such as the board of directors, ensuring representation of minority shareholders.
  3. Protective Clauses: These rules, including non-compete, non-solicitation, and confidentiality obligations, aim to safeguarding the interests of both the company and shareholders.

Can a shareholders’ Agreement Be Amended?

A shareholders' agreement is not set in stone. To create or modify it, agreement from all parties involved is necessary, ensuring ongoing relevance as the company evolves.

What Happens If You Don't Follow a Shareholders' Agreement?

Failure to comply with the shareholders' agreement can have serious legal consequences. For instance, selling shares in violation of the agreement could invalidate them and potentially branding you a “bad actor”. This may lead to your exclusion and obligate other shareholders to buy back your shares at a lower price. The "good/bad actor" clauses are crucial to consider. While sensitive, they are essential for safeguarding the company's founders and investors, ensuring project stability by aligning everyone with the objectives. Striking a balance between protecting stakeholders' interests and fostering collaboration is essential for long-term success.

What Role Does the Attorney Play?

The attorney plays a crucial role in guiding discussions and ensuring that all parties’ interests are accurately reflected in the contract. With their assistance, a solid foundation can be established for the long-term success of the company.

How Do You Tell Apart the Shareholders' Agreement and Company Bylaws?

Company bylaws and shareholders' agreements serve different purposes. While company bylaws are public and have a legal basis, the shareholders' agreement remains confidential and manages shareholder relations behind the scenes.

Who Needs a Shareholders’ Agreement or Founders’ Agreement?

While these agreements may not anticipate or resolve all conflicts, they provide clarity and structure. They serve as vital tools for avoiding misunderstanding and effectively managing tensions within the company. Whether you're a seasoned entrepreneur or a budding startup founder, having a clear framework is crucial. Through preventive discussion and agreements in place, entrepreneurs can foster harmonious relationships, mitigate risks, and propel their ventures towards sustainable growth.

About the Contributors

Lea Buddingh - Marketing and Communication Manager at StartLab.Brussels

Thomas Daenen - Lawyer specializing in startups and scale-ups at Beyond Law Firm, Belgium.

Special thanks to Thomas for his invaluable expertise and investment in supporting young entrepreneurs.

Dive deeper into valuable insights and expert advice available in the SLB magazine, and discover additional content, all waiting for you below.

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