Shareholders' agreement: professional investors
This shareholder agreement has been drawn to include the provisions that a large professional or institutional investor such as a business angel, venture capital or private equity investor would require to protect their investment. It also considers the provisions of minority shareholders, who by virtue of the circumstances are likely to be the founders and friends and family of the founders. Additional features to other Net Lawman shareholder agreements include: drag along and tag along rights, key man insurance, rights of preference, rights of first offer, and increased reporting requirements.
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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 New Zealand
• 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 constitution of the company is in terms which permits and supports this agreement.
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
- 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
- Conflict with the Constitution
This document was written by a solicitor for Net Lawman. It complies with current New Zealand law.
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