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15 Sep 14
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A company is owned by its shareholders. The shareholders appoint the directors who then appoint the management. The directors are the "soul" and conscience of the company.
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When a company is created, its founding shareholders determine how a company will be owned and managed. This takes the form of a "shareholders agreement". As new shareholders enter the picture, for example angel investors, they will want to become part of the agreement and they will most likely add additional complexity
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e vesting terms and also mechanisms to ensure that they ultimately can exit and get a return on their investment. Not having such an agreement can lead to serious problems and disputes and can result in corporate failure. It's a bit like a prenuptial agreement.
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Companies must comply with the law. Companies are incorporated in a particular jurisdiction (e.g. State, Province or Country) and must adhere to the applicable legislation, e.g. the Canada Business Corporations Act, or the B.C. Corporations Act
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When a company is formed, its shareholders may decide on a set of ground rules over and above the basic legislation that will govern their behavior
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What to Include
Some of the main points (ie. a checklist) to include in a shareholders agreement are:
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reparing and discussing such an agreement will give you valuable insights into other parties' styles, objectives, etc. It should force a close and honest evaluation of who will do what and who is committed to doing what. Most importantly, are the founders' personal goals, objectives and propensities to take risk compatible?
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Define all terms used throughout the agreement, for example: Common share ratio, Special Directors' resolution, Buyer, Seller, Vesting (a very important one that is often misunderstood), etc.
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Board of Directors: How many? Who initially? Meet how often? How are directors appointed/replaced? Quorum? Voting - majority, unanimous, etc? (may also refer to By-Laws re elections) Officers: Who initially? Remuneration? Banking: who is authorized? ALL financial transactions to go through a corporate bank account. Who (Officers vs Directors - majority or unanimous) can: approve expenditures over a specific amount? approve acquisitions? elect officers? payment of cash or stock dividends? enter into debt obligations? approve stock purchase/option plans? dispose of any part (or assets) of the business? sell rights to products, licenses etc? transfer shares? liquidate or windup the corporation? approve contracts outside the ordinary course of business? enter into any contract above $x? authorize the lending (or borrowing) of money by the corporation? guarantee any obligations? hire employees (at various levels)? approve salaries and bonuses? alter share structure? redemption of shares? enter into consulting arrangements?
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