Shareholders' agreement: professional investors

This document includes terms that a professional investor such as a business angel or venture capitalist would require.

It also considers the provisions of minority shareholders - likely to be the founders and early supporters.

Additional terms in this document include: drag along and tag along rights, key man insurance, rights of preference, rights of first offer, and increased reporting requirements.

Suitable for use in: England & Wales and Scotland
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About this document

This template is drawn specifically to cover the situation where an external investor introduces money. The transaction is likely to be a loan agreement, supported by a shareholding.

The smaller the proportion of shares, the more important this agreement becomes. It protects and empowers the investor in ways that are fair and that reflect the fact that he, she or it may not be involved in the day to day operation of the business. However, the option of board representation is provided.

This version is also suitable for a situation where the investor has a voting majority but prefers to stay away from day to day management. Other shareholders, who may include the company founders, are not prejudiced.

This agreement is:

  • suitable for private companies in any industry in the UK

  • with any number of shareholders

  • suitable for all stages of the business/investment lifecycle, whether the investor is providing seed capital, venture capital, expansion capital or a MBO

  • the company could be a start-up or established

The agreement is not affected by use of different classes of shares, the terms of any loan agreement, use of options, or other structure. Ideally, where a large investment is being made, this agreement would be drawn alongside the other legal documents, such as lending agreements that deal with the investment so that it is in place as soon as the transaction completes.

Note: It is important that the articles of association of the company are in terms which permit and support this agreement. A specialised template for suitable articles where the company has an investor or lender is available.

Contents

There are specific provisions in this agreement that are not included in other Net Lawman shareholders’ agreements that a business angel or venture capitalist is likely to require. It considers minority shareholders such as company founders still working in the business

Examples are the inclusion of procedure to deal if deadlock occurs, increased reporting and information rights, drag along and tag along rights, and provisions to protect shareholders from dilution of their investment at subsequent financing rounds such as right of first offer.

Standard terms, such as those setting out responsibilities of the directors and the company to shareholders, are of course included.

In many areas, we give you complete alternative paragraphs and explain in the notes when each will be the most suitable for you.

The paragraphs in this document include:

  • Appointment of directors

  • Responsibility of directors

  • Proxy voting of shareholders at meetings

  • Company's obligations to the shareholders

  • Additional disclosure and access to information for the investor(s)

  • Assets introduced by shareholders

  • Intellectual property introduced by shareholders

  • Actions requiring shareholder consent

  • Deadlock

  • Transfers conditionally permitted

  • Assets and intellectual property introduced by the investor

  • Tag along right

  • Drag along right

  • Transfers on death or incapacity

  • Limitation of actions by former shareholder

  • Dividend policy and procedure

  • Continuing obligations of shareholders

  • Publicity

  • Conflict with the Articles of Association

  • Confidentiality

Draftsman

This document was written by a solicitor for Net Lawman. It complies with current English law.

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