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Draft a Shareholder Agreement for a family-owned business.

Shareholder Agreement for a Family-Owned Business


Table of Contents
  1. Introduction

  2. Definitions

  3. Purpose of the Agreement

  4. Shareholder Rights and Obligations

    1. Voting Rights

    2. Dividend Rights

    3. Transfer of Shares

  5. Management and Governance

    1. Board of Directors

    2. Decision-Making Process

  6. Financial Matters

    1. Capital Contributions

    2. Profit Distribution

  7. Dispute Resolution

  8. Termination and Exit Strategy

  9. Miscellaneous Provisions

  10. Signatures


1. Introduction

This Shareholder Agreement (the "Agreement") is made and entered into as of [Date], by and among the following parties (collectively referred to as the "Shareholders"):

  • [Shareholder 1 Full Name], residing at [Shareholder 1 Address]

  • [Shareholder 2 Full Name], residing at [Shareholder 2 Address]

  • [Shareholder 3 Full Name], residing at [Shareholder 3 Address]

The Shareholders are all members of the [Family Name] family and are shareholders in [Company Name], a company incorporated under the laws of Kenya, with its principal office located at [Company Address] (the "Company").

2. Definitions

For the purposes of this Agreement, the following terms shall have the meanings set forth below:

  • "Articles of Association" means the articles of association of the Company as amended from time to time.

  • "Board" means the board of directors of the Company.

  • "Shares" means the ordinary shares of the Company.

  • "Transfer" includes any sale, assignment, transfer, pledge, or other disposition of Shares.

3. Purpose of the Agreement

The purpose of this Agreement is to set forth the rights and obligations of the Shareholders, to provide for the management and governance of the Company, and to establish mechanisms for resolving disputes and handling the transfer of Shares.

4. Shareholder Rights and Obligations

4.1 Voting Rights

Each Shareholder shall have the right to vote on all matters submitted to a vote of the Shareholders in accordance with the Articles of Association and this Agreement. The voting power of each Shareholder shall be proportional to the number of Shares held by such Shareholder.

4.2 Dividend Rights

The Shareholders shall be entitled to receive dividends declared by the Company in proportion to their respective shareholdings, subject to the provisions of the Articles of Association and applicable law.

4.3 Transfer of Shares
  • Right of First Refusal: If a Shareholder wishes to transfer any of their Shares, they must first offer such Shares to the other Shareholders on the same terms and conditions.

  • Permitted Transfers: Transfers of Shares to other family members or to trusts established for the benefit of family members shall be permitted without the need for prior offer to other Shareholders.

  • Approval of Transfers: Any transfer of Shares not covered by the right of first refusal or permitted transfers shall require the approval of the Board.

5. Management and Governance

5.1 Board of Directors
  • Composition: The Board shall consist of [Number] directors. Each Shareholder holding at least [Percentage]% of the Shares shall have the right to appoint one director.

  • Meetings: The Board shall meet at least [Frequency] and as otherwise required. Notice of meetings shall be given to all directors at least [Number] days in advance.

5.2 Decision-Making Process
  • Majority Vote: Except as otherwise provided in this Agreement, decisions of the Board shall be made by a majority vote of the directors present at a meeting.

  • Reserved Matters: Certain matters, including but not limited to amendments to the Articles of Association, approval of significant transactions, and changes in capital structure, shall require the approval of [Supermajority] of the Shareholders.

6. Financial Matters

6.1 Capital Contributions

Each Shareholder agrees to contribute capital to the Company as required and in proportion to their shareholding. Additional capital contributions shall be made on terms agreed upon by the Shareholders.

6.2 Profit Distribution

The profits of the Company shall be distributed to the Shareholders in proportion to their respective shareholdings, subject to the retention of reasonable reserves for the Company's operations and future growth.

7. Dispute Resolution

In the event of any dispute arising out of or in connection with this Agreement, the Shareholders shall first seek to resolve the dispute amicably through good faith negotiations. If the dispute cannot be resolved through negotiations, it shall be referred to mediation in accordance with the rules of the [Mediation Institution]. If mediation fails, the dispute shall be finally resolved by arbitration in accordance with the rules of the [Arbitration Institution].

8. Termination and Exit Strategy

This Agreement shall continue in effect until terminated by the written agreement of all Shareholders. Upon termination, the Shareholders shall cooperate in good faith to wind up the affairs of the Company and distribute its assets in accordance with their respective shareholdings.

9. Miscellaneous Provisions

  • Amendments: This Agreement may be amended only by a written agreement signed by all Shareholders.

  • Governing Law: This Agreement shall be governed by and construed in accordance with the laws of Kenya.

  • Entire Agreement: This Agreement constitutes the entire agreement among the Shareholders with respect to the subject matter hereof and supersedes all prior agreements and understandings, whether written or oral.

10. Signatures

IN WITNESS WHEREOF, the parties hereto have executed this Shareholder Agreement as of the day and year first above written.


[Shareholder 1 Full Name]
Signature: ___________________________
Date: _______________________________

[Shareholder 2 Full Name]
Signature: ___________________________
Date: _______________________________

[Shareholder 3 Full Name]
Signature: ___________________________
Date: _______________________________


TLDR

This Shareholder Agreement outlines the rights and obligations of shareholders in a family-owned business, covering aspects such as voting rights, dividend rights, transfer of shares, management, financial matters, dispute resolution, and termination.

Conclusion

A well-drafted Shareholder Agreement is crucial for the smooth operation and governance of a family-owned business. It helps in preventing disputes and ensuring that all shareholders are on the same page regarding their rights and obligations. This sample agreement provides a comprehensive framework that can be tailored to fit the specific needs of your family business.


Sources:

  • Rödl & Partner

  • Capita Registrars Kenya Limited

  • MMS Advocates

  • Masibo Law

  • Imperial Registrars

  • Lexology

Answered by mwakili.com