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Shareholder Agreement Preparation Questionnaire
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Ownership, Share Structure, and Transfer Policies

Share transfer restrictions help maintain control within the original shareholder group by preventing external parties from acquiring shares without approval. Example 1: "Any shareholder wishing to sell must first offer shares to other shareholders under the same terms." Example 2: "Transfers require unanimous approval from all existing shareholders."
Mandatory sale conditions protect the company by allowing a smooth transition of shares in case of unforeseen events. Example 1: "Shares must be sold to remaining shareholders if a shareholder dies." Example 2: "Incapacity triggers a mandatory offer of shares to other shareholders."
Ensuring control by restricting share sales can prevent outside influence that could disrupt the company’s direction. Example 1: "Only existing shareholders or approved parties may purchase shares." Example 2: "Shares can only be sold to family members or close affiliates with board approval."
A lock-in period ensures that shareholders commit to the company for a certain time before transferring shares, which stabilizes ownership and protects against frequent changes in shareholding. Example 1: "Shares must be held for at least two years before any transfer is permitted." Example 2: "A minimum holding period of 12 months applies to all new shareholders."
Anti-dilution provisions protect existing shareholders’ interests by maintaining their relative ownership percentage when new shares are issued. This can be done by offering current shareholders the option to buy additional shares or adjusting ownership stakes. Example 1: "Existing shareholders will have a preemptive right to purchase new shares to avoid dilution." Example 2: "For any new issuance, current shareholders are given the option to buy at the same price to maintain their ownership percentage."

Decision-Making and Voting Rights

Voting rights define how much influence each shareholder class has over company decisions. Example 1: "Class A shares receive one vote per share; Class B shares have no voting rights." Example 2: "Each share class has proportional voting rights based on ownership."
Different share classes can provide flexibility by allowing varying rights for control, dividends, or voting. Example 1: "Class A shares have voting rights; Class B shares are non-voting but entitled to higher dividends." Example 2: "All shares have equal rights, with no distinctions among share classes."
Special voting thresholds ensure that significant changes have broad shareholder support. Example 1: "Issuing new shares requires an 80% majority vote." Example 2: "Any capital structure changes need unanimous consent."
Defining the process for appointing or removing directors ensures that changes in company leadership are handled transparently and fairly. Clear guidelines prevent disputes over who has authority in these decisions, whether it's based on shareholder voting, board approval, or a specific percentage threshold. Example 1: "Directors are appointed or removed by a majority vote of shareholders holding at least 60% of the voting shares." Example 2: "The board of directors has the authority to appoint new directors by a 75% majority vote, while removal requires a unanimous decision by all existing board members."
Voting procedures determine decision-making processes for operational and strategic issues. Example 1: "Votes are cast by simple majority unless specified; major decisions require unanimous approval." Example 2: "All votes require a 75% majority for approval."
Weighted voting rights give certain directors or shareholders more influence over specific decisions, often in cases where their expertise or investment justifies added authority. Example 1: "The CEO, as a director-shareholder, has double voting rights on strategic planning decisions." Example 2: "Director-shareholders hold one additional vote on financial matters if they invest more than 25% of capital."
Veto rights allow specific shareholders or directors to block certain decisions, ensuring major stakeholders can prevent actions they strongly disagree with. This is commonly applied to significant company changes or transactions. Example 1: "Shareholder A has veto rights over acquisitions, mergers, and capital raises." Example 2: "Any decision to issue new shares requires unanimous consent from all directors, granting them effective veto power."

Roles, Responsibilities, and Governance Structure

Identifying management roles clarifies who is responsible for daily operations versus strategic oversight. Example 1: "Shareholder A will manage operations; Shareholder B will focus on finance and strategy." Example 2: "Only designated directors are involved in daily management; other shareholders are passive."
Defining roles helps prevent overlap and clarifies each director's specific duties. Example 1: "Director A handles HR and compliance; Director B manages finance and budgets." Example 2: "Shareholder-directors will have board voting rights but no operational role."
Specifying governance roles clarifies the influence shareholders will have on company oversight and decision-making. Example 1: "Each shareholder holding over 25% will have a seat on the board." Example 2: "Only Shareholder A will have a board position; other shareholders are non-directors."
Establishing meeting requirements ensures regular oversight and a standard for decision-making. Example 1: "The board will meet monthly, with at least two members required for quorum." Example 2: "Quarterly meetings are mandatory, with attendance from all directors."
Setting rules for director appointments and removals ensures that changes are handled fairly and transparently. Example 1: "Directors are appointed by majority vote of shareholders." Example 2: "A 75% shareholder vote is required to remove any director."
Board structure sets expectations for leadership composition and decision-making authority. Example 1: "The board will consist of two directors, including the CEO and CFO." Example 2: "The board will have three members: the founder, a finance director, and an independent advisor."
Succession planning ensures continuity and smooth transitions if a key stakeholder exits. This helps avoid operational disruptions and can include predefined buyout arrangements or plans for interim leadership. Example 1: "In the event of an unexpected exit, the remaining shareholders will immediately begin a search for a successor and may appoint an interim director." Example 2: "Shares of exiting key shareholders will automatically be offered to existing shareholders at fair value to maintain control within the company."
Distinct voting rights in governance matters allow certain director-shareholders more influence in managing the company, which may reflect their unique responsibilities or stake in the business. Example 1: "The founder-director holds two votes on board decisions related to company strategy." Example 2: "Director-shareholders have weighted votes equal to their percentage ownership for governance issues."

Profit Distribution and Financial Contributions

Distribution policies ensure that shareholders know when and how to expect returns on their investment. Example 1: "Dividends will be distributed quarterly based on available profits." Example 2: "Annual profit distributions will occur if net profits exceed £100,000."
Distribution criteria clarify whether profits are shared equally or based on other arrangements. Example 1: "Distributions will be based on ownership percentages only." Example 2: "Each shareholder receives 50% of profits, regardless of ownership percentages."
Retained earnings policies support growth by setting aside funds for reinvestment rather than distribution. Example 1: "30% of profits will be retained each year for reinvestment." Example 2: "Earnings will be retained if agreed upon unanimously by the board." Setting a minimum reinvestment percentage ensures that some profits are retained for growth and operational needs, balancing shareholder returns with long-term stability. Example 1: "At least 20% of annual profits will be reinvested in business expansion each year." Example 2: "A minimum of 30% of profits is allocated for reinvestment into R&D and infrastructure."
Setting expectations for additional contributions helps prepare shareholders for future funding needs. Example 1: "Shareholders may be required to contribute equally if additional funds are needed." Example 2: "Funding needs will first be met through external loans before asking shareholders to contribute."
Outlining the impact of further contributions on equity ensures fair treatment for contributing shareholders. Example 1: "Additional contributions will increase shareholder equity proportionally." Example 2: "Shareholder loans do not affect equity unless converted to shares."

Compensation and Incentives

Compensation policies distinguish between dividends and additional remuneration for active roles. Example 1: "Directors receive annual fees, while shareholders receive dividends only." Example 2: "Shareholder-directors receive monthly salaries in addition to dividends."
Performance incentives align interests of key personnel with company success. Example 1: "Directors receive annual bonuses based on reaching revenue goals." Example 2: "Key employees are eligible for performance-based bonuses at the board’s discretion."
Share-based compensation aligns key personnel’s interests with the company’s success by offering equity or stock options, fostering motivation and long-term commitment. Example 1: "Key employees will receive stock options, exercisable after three years based on performance goals." Example 2: "Directors are eligible for annual equity grants, contingent on the company reaching revenue targets."

Liability, Risk Mitigation, and Insurance

Indemnity protects directors from personal liability, helping to attract and retain qualified leadership. Example 1: "Directors are indemnified against liabilities arising from lawful company actions." Example 2: "An indemnity clause will protect directors unless they act negligently."
Clarifying responsibilities and protections prepares shareholders for potential risk exposure. Example 1: "Shareholders' liability is limited to their share contributions." Example 2: "Shareholders agree to contribute up to an additional £50,000 if financial risk threatens company stability."
Indemnification protects shareholders and directors from personal liability related to company actions, encouraging active involvement without fear of financial risk. Example 1: "Directors are indemnified against any claims resulting from company-approved actions." Example 2: "Shareholders are protected from litigation liability unless actions are proven grossly negligent."
Insurance for business risks protects the company and shareholders from potential claims. Example 1: "The company will obtain public liability and professional indemnity insurance." Example 2: "An insurance policy will cover potential legal claims against the company."
Key person insurance safeguards the company if essential personnel leave unexpectedly. Example 1: "Key person insurance will cover the CEO and CTO." Example 2: "Insurance policies will cover all directors to secure the business from leadership loss."
Business continuity plans outline steps to keep the company operational during crises, safeguarding company stability and protecting shareholder interests. Example 1: "The company will establish an emergency succession plan for all key personnel." Example 2: "An annual review of business continuity measures, including data backups and key person insurance, will be conducted."

Dispute Resolution and Handling Shareholder Exits

Dispute resolution methods provide structured options to address conflicts outside of court, minimizing disruption to the company. Example 1: "All disputes will first go to mediation. If unresolved, they will proceed to binding arbitration." Example 2: "Mediation is mandatory for all disputes, and if unresolved within 30 days, the dispute goes to arbitration."
Specifying conditions for a voluntary exit provides clarity on when a shareholder can choose to leave the company and the valuation process for their shares. This helps prevent disputes and ensures the exiting shareholder receives fair compensation, while remaining shareholders maintain control over the transfer process. Example 1: "A shareholder may exit by providing 90 days' notice, with shares valued at the company’s latest audited valuation." Example 2: "Shareholders can voluntarily exit once per year, with shares valued at the average of three independent appraisals."
Forced sale provisions establish how shares will be handled if a shareholder becomes incapacitated or otherwise unable to fulfill their role. This protects the company by enabling continuity and ensuring that shares are fairly and efficiently transferred or acquired. Example 1: "If a shareholder is incapacitated, their shares must be offered to remaining shareholders at fair market value." Example 2: "Forced sales due to incapacity are managed by appointing an independent appraiser to determine share value, which is then offered to other shareholders."
Pre-determined arrangements for these events ensure that shares are transitioned smoothly and fairly, maintaining stability for the company and clarity for heirs or remaining shareholders. Example 1: "In the event of death, shares will be bought back by the company at fair market value and redistributed to remaining shareholders." Example 2: "If a shareholder retires, they may sell shares to existing shareholders, or the company may buy back shares to prevent transfer to external parties."
Mandatory buy-back provisions outline the steps for purchasing shares of a departing shareholder, ensuring fair compensation and continuity in ownership. Example 1: "In case of death, remaining shareholders must buy out shares at fair market value." Example 2: "The company will buy back shares of incapacitated shareholders within 90 days, based on independent valuation."
Non-transferable rights ensure that certain privileges or benefits end when a shareholder exits, maintaining original arrangements and protecting the company’s control over share rights. Example 1: "Voting rights associated with preferred shares are non-transferable upon exit." Example 2: "Shareholder benefits, such as board seat privileges, cannot be transferred to heirs."
Establishing a fair valuation method for exits or buyouts ensures transparency and avoids disputes by creating an agreed-upon method for calculating share worth. Common valuation methods include market valuation, net asset value, or independent appraisal. Example 1: "Share value will be determined based on the company’s last audited financial statements, using net asset value as the basis." Example 2: "An independent appraiser will assess the fair market value of shares, and this valuation will be final for any buyout scenario."
Drag-along and tag-along rights protect both majority and minority shareholders. Drag-along rights allow majority shareholders to compel minority shareholders to sell shares in a full acquisition, while tag-along rights give minority shareholders the option to sell alongside the majority in the same deal, ensuring equitable treatment. Example 1: "The agreement includes drag-along rights, allowing majority shareholders to require minority shareholders to sell if a third-party buyer acquires more than 75% of shares." Example 2: "Tag-along rights allow minority shareholders to join any majority sale, ensuring they receive the same price per share as the selling majority shareholders."
Deadlock mechanisms ensure that operational or strategic impasses do not hinder company progress. Example 1: "In case of deadlock, a third-party advisor will cast a deciding vote." Example 2: "Deadlocks will trigger a forced buyout or a 'Texas shootout' where each party submits a bid to buy the other out."

Confidentiality, Non-Compete, and Restrictive Covenants

Confidentiality clauses prevent shareholders from disclosing proprietary or sensitive information, protecting the company’s competitive advantage. Example 1: "All shareholders agree to a perpetual confidentiality clause covering all business information." Example 2: "A confidentiality clause prohibits disclosure of financial, client, and IP information."
Non-compete clauses prevent shareholders from engaging in competing businesses, protecting the company from conflicts of interest. Example 1: "Shareholders may not engage in any competing businesses within 2 years of leaving." Example 2: "Shareholders are restricted from directly competing within the same industry for 12 months post-exit."
Defining restrictive periods establishes how long former shareholders must refrain from competing or soliciting, protecting the company from immediate competition and loss of clients or employees. Example 1: "Non-compete and non-solicitation restrictions apply for 18 months post-exit." Example 2: "A 12-month restriction period will prevent former shareholders from engaging with company clients."
Stating penalties for breaches deters violations and ensures accountability, protecting the company’s interests. Example 1: "Breaching the non-compete will result in a penalty equal to 50% of the shareholder's final annual dividends." Example 2: "Confidentiality violations may result in legal action and financial damages equal to any proven losses."
Non-solicitation clauses protect the company’s workforce and client base from being poached by former shareholders. Example 1: "Shareholders cannot solicit clients or employees for 18 months post-departure." Example 2: "A 12-month restriction on client solicitation applies to all exiting shareholders."
Additional covenants, such as non-disparagement, protect the company’s reputation and operations by restricting specific shareholder actions. Example 1: "A non-disparagement clause prevents shareholders from publicly criticizing the company." Example 2: "Exiting shareholders cannot make public statements about company policies or practices."

Intellectual Property and Proprietary Information

Defining IP contributions ensures clarity on ownership and usage rights for any assets contributed by shareholders. Example 1: "Shareholder A will contribute a software patent, which will be owned by the company." Example 2: "Shareholders agree to transfer any contributed IP to the company for exclusive use."
Establishing compensation for contributed IP ensures shareholders are rewarded fairly if their IP adds significant value to the business. Example 1: "Shareholders will receive an annual royalty if contributed IP generates over 10% of company revenue." Example 2: "Significant IP contributions will be compensated with additional equity based on the IP’s valuation."
Ownership provisions clarify whether IP developed by shareholders belongs to the company or the individual. Example 1: "All IP developed by shareholders while engaged with the company is owned by the company." Example 2: "Shareholders retain ownership of their IP but grant an exclusive license to the company."
Licensing provisions allow the company continued access to essential IP even if a shareholder departs. Example 1: "Upon exit, the shareholder grants a perpetual, royalty-free license to the company for continued use." Example 2: "Exiting shareholders retain IP rights but provide an exclusive, time-limited license to the company."
Assigning IP upon exit ensures the company retains necessary rights for continued use, regardless of shareholder departures. Example 1: "All IP developed during a shareholder’s involvement remains with the company upon exit." Example 2: "Exiting shareholders must assign all developed IP to the company for exclusive use."

Company Operations and Governance Structure

Specifying signatory authority establishes clear boundaries on who can commit the company to contracts or obligations, protecting against unauthorized commitments. Example 1: "Only the CEO and CFO can sign agreements above £10,000." Example 2: "Signatory authority for all contracts is limited to directors unless delegated in writing."
Defining signing authority clarifies who can enter into contracts or make financial commitments on the company’s behalf. Example 1: "Only the CEO and CFO have signing authority for contracts over £10,000." Example 2: "Board approval is required for any commitments exceeding £25,000."
Outlining social or ethical standards sets a foundation for responsible business practices and company values. Example 1: "The company will follow policies on sustainable sourcing and employee welfare." Example 2: "A commitment to environmental responsibility will be included in all corporate policies."
Corporate governance practices establish ethical guidelines, ensuring the company operates responsibly and transparently. Example 1: "The company will adhere to best practices in environmental impact reduction and carbon footprint tracking." Example 2: "Governance policies will emphasize ethical labour practices and sustainable sourcing."

Record Keeping and Reporting Requirements

Regular reporting provides transparency, allowing shareholders to monitor financial performance and company operations. Example 1: "Shareholders will receive quarterly financial statements and an annual report." Example 2: "Monthly operational summaries will be provided, including cash flow, revenue, and expenses."
Transparency requirements ensure shareholders are informed about significant financial and operational risks. Example 1: "Major financial decisions require disclosure to all shareholders within seven days." Example 2: "Quarterly reports will include a risk assessment section covering operational and financial risks."

Miscellaneous and Future Changes

Establishing amendment procedures ensures that changes to the agreement are handled transparently and with due process. Example 1: "Amendments require a 75% majority vote from shareholders." Example 2: "Unanimous approval from all shareholders is needed for any amendments."
Setting provisions for structural changes allows flexibility for future growth or strategic shifts without compromising shareholder interests. Example 1: "New share issues require unanimous approval to prevent dilution of existing shares." Example 2: "Mergers must be approved by at least 80% of voting shareholders."
Specifying the agreement’s duration and termination conditions ensures clarity on how long obligations apply and what circumstances will end the agreement. Example 1: "The agreement is indefinite but may terminate upon company dissolution or mutual shareholder consent." Example 2: "The agreement remains active as long as two or more shareholders remain; it terminates upon a sole shareholder’s ownership."
A regular review period keeps the agreement updated to reflect the company’s evolving needs and external conditions, ensuring relevance and effectiveness. Example 1: "The shareholder agreement will be reviewed every three years." Example 2: "An annual review will assess the agreement’s alignment with company growth and regulatory changes."
This is an opportunity to include any unique arrangements or specific concerns that may be important to your company’s governance or shareholder relationships. Feel free to provide any details that would help us ensure the agreement is tailored to your exact needs. Example: "We would like to include a provision for board approval on all expenses above £5,000" or "Please include terms addressing future expansion and financing options for the company."
By completing and submitting this form, you acknowledge that the information provided is accurate and complete to the best of your knowledge. This form is designed to gather preliminary information only and does not constitute legal advice. Any draft agreements created based on this information will require review and final approval to ensure they fully reflect your intentions and comply with applicable laws. Please be advised that any customized legal provisions should be discussed with a qualified legal professional before implementation. Smart Accounting & Business Services Ltd accepts no liability for decisions made based on incomplete or inaccurate information provided in this form.
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