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Shareholder Agreement

A Shareholder Agreement is a supplementary document to the company’s constitution which governs shareholders rights and the management and operation policy of the company.

There are numerous reasons why smart business people use shareholders agreements.

As already mentioned the first and prime reason is that it provides an exit strategy. Without such an agreement the selling shareholder and the other shareholders must reach an agreement on a value of shares and stock. This is frequently a difficult task in closely held companies, particularly if the remaining shareholders have little or NO interest in purchasing the shares.

On the other hand, where a company has grown to be successful so that there is actually an outside market for the shares, the shareholder agreement allows shareholders to have control over any sales of shares to outside parties.

This is done by a provision in the agreement that the shareholders have “a right of first refusal” to purchase any shares being sold, before the shares can be offered to outside sources.

Shareholder agreements can also ensure ongoing control of the company.

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