A shareholders agreement is an agreement between the shareholder owners of the corporation in which the shareholders can set forth in writing the particular agreements that they have among themselves. A Shareholders Agreement can override or modify the provisions of the Pennsylvania corporation law which controls in the absence of a shareholders agreement.

A shareholders agreement may address, among other things, the following subjects:

  • Membership of the board of directors
  • Officers of the corporation
  • Hiring and firing of employees
  • Compensation of shareholder/employees
  • Bonus provisions
  • Majority or supermajority voting requirements on certain decisions (also addressed in By-Laws)
  • Buy-Sell obligations, options or rights of first refusal
  • Events that cause termination and dissolution of the corporation
  • Permitted shareholders
  • Employment agreements for shareholder/employees
  • Life insurance on shareholders
  • Disability provisions
  • Retirement provisions
  • Termination of employment of a shareholder
  • Arbitration, mediation or other dispute resolution mechanisms

A shareholder agreement is particularly useful if the company is closely held (having only a few shareholders) and when most of the shareholders are also employees of the corporation. Depending on the particular circumstances, some shareholders may want to ensure equal ownership of the corporation and equal representation on the Board of Directors.

Shareholder agreements can also contain a “right of first refusal” which gives either the corporation or the other shareholders the first opportunity to buy the stock, at a designated price, before it is sold to outsiders. (See Buy-Sell Agreements subpage). For example, if an employee-shareholder dies, becomes disabled or leaves the employment of the corporation, the shareholders agreement can require that the individual sells his stock back to the corporation or to the other shareholders.

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