Shareholder agreement
Factual definition
A shareholder agreement is an agreement among shareholders, sometimes with the company also a party, setting agreed rights and obligations. Its effect depends on governing law and the company’s constitutional documents.
Negotiate the retained shareholder’s rights
Hypothetical: an investor and a seller retaining an equity stake negotiate transfer restrictions, board representation, specified approval rights, and exit provisions. The rights depend on the agreed documents, not merely on the amount the seller reinvests.
A percentage of sale proceeds reinvested does not by itself establish the seller’s ownership percentage.
Matters the agreement may govern
- transfers
- board rights
- vetoes
- exits
Translate the voting provision into actual votes
Hypothetical negotiated exit provision. Three holders own 70%, 20% and 10% of the voting shares.
Assume a valid drag-along provision requires at least 80% approval, all shares carry equal votes, and every other contractual and legal condition is met. The 70% holder cannot trigger it alone.
Support from the 10% holder brings the vote to 80%, even if the 20% holder opposes.
Change the assumed threshold to more than 80%, and the same coalition fails. A separate class consent or personal veto could also change the answer.
Ownership percentage, a board seat and a contractual consent right are different things; make a separate record of each before negotiating a retained stake.
The NVCA’s model-document set separates voting, investor rights and transfer arrangements and requires tailoring. Trace the actual sale trigger through all relevant documents, including notice, permitted consideration and class protections.
The example above demonstrates arithmetic under stated terms, not a default rule for every company.
Where Shareholder agreement fits
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