AI Shareholder Agreement Generator

A shareholder agreement fills gaps left by corporate bylaws and statutory law by addressing the specific dynamics of your ownership group. It prevents disputes by establishing clear rules for share transfers, governance decisions, dividend distributions, and exit scenarios. Without one, shareholders may face deadlocks, unwanted ownership changes, and costly litigation when disagreements arise. It is especially critical for closely held companies.

Tag-along rights (co-sale rights) allow minority shareholders to join a sale if a majority shareholder sells their shares, ensuring they get the same price and terms. Drag-along rights allow majority shareholders to force minority shareholders to join a sale of the entire company, preventing holdouts from blocking beneficial transactions. Both provisions are standard in shareholder agreements and protect different stakeholder interests.

A right of first refusal gives existing shareholders the opportunity to purchase shares that another shareholder wants to sell before those shares can be offered to outside parties. The selling shareholder must present the proposed terms, and the ROFR holders have a specified period to match those terms. This mechanism helps maintain ownership control and prevents unwanted third parties from acquiring shares in the company.

Buy-sell provisions establish mechanisms for shareholders to buy or sell shares upon triggering events such as death, disability, retirement, termination, or voluntary departure. They typically include a valuation methodology (formula, appraisal, or agreed value), funding mechanisms (insurance, installment payments), and timelines. Common structures include cross-purchase agreements (shareholders buy from each other) and entity redemption agreements (the company buys back shares).

Anti-dilution provisions protect shareholders from having their ownership percentage reduced when the company issues new shares. Full ratchet anti-dilution adjusts the conversion price to the lowest price at which new shares are issued. Weighted-average anti-dilution uses a formula that considers the number and price of new shares issued. These provisions are particularly important for investors and are a key negotiation point in venture capital deals.