Understanding shareholder agreement [Whiteboard Friday]

A shareholders’ agreement is an agreement among the shareholders of a company.In this episode of eLagaan Whiteboard Friday, the eLagaan team explains basic reason why every startup should have a shareholder agreement whenever there is more then one shareholder in the company. It discusses the advantages and disadvantages of having this legal contract between all the founders and major shareholders.

Some of the key aspects of this agreement include:

  • Vesting schedule & reverse vesting schedule.
  • Right of first refusal – What happens when one of the share holder is trying to sell their share, and the other share holders don’t want him to.
  • Tag along rights / Drag along rights – What if majority share holders want to sell the stocks and a minority share holder does not want to?
  • When should a legal shareholder agreement be drafted

Hopefully you would take these things into account before you form your startup Company and issue stocks to various stake holders, founder, employees or investors.

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