Delaware Stockholder Agreement - LegalContracts.com

Corporation Information

Name:
Address:
Jurisdiction of Incorporation:

Select the state in which the corporation was incorporated or the state in which the corporation was continued. If you are unsure of your corporation's jurisdiction, check your articles of incorporation or corporate charter.

Is the Corporation a close corporation?

Some states authorize the stockholders of close corporations, but not the stockholders of other corporations, to enter into an agreement that restricts the discretion and powers of the board of directors. Thus, your answer will influence the options available to you in this agreement. If you do not know if your corporation is a close corporation, look at the articles of incorporation for your corporation. If your corporation was incorporated in Delaware, look at the certificate of incorporation.

Stockholder Information Q. Who are the parties to the Stockholders' Agreement? A. The parties to a Stockholders' Agreement are the shareholders of the corporation. Ideally, all Stockholders will participate in the Stockholders' Agreement.

Number of Stockholders:

First Stockholder

Name:
Address:
Type:

Second Stockholder

Name:
Address:
Type:

Third Stockholder

Name:
Address:
Type:

Fourth Stockholder

Name:
Address:
Type:

Fifth Stockholder

Name:
Address:
Type:

Sixth Stockholder

Name:
Address:
Type:

Seventh Stockholder

Name:
Address:
Type:

Eighth Stockholder

Name:
Address:
Type:

Ninth Stockholder

Name:
Address:
Type:

Tenth Stockholder

Name:
Address:
Type:

Eleventh Stockholder

Name:
Address:
Type:

Twelfth Stockholder

Name:
Address:
Type:

Thirteenth Stockholder

Name:
Address:
Type:

Fourteenth Stockholder

Name:
Address:
Type:

Fifteenth Stockholder

Name:
Address:
Type:

Warranties

Will the Corporation warrant who owns its Stocks?		Q. Why would I want the Corporation to warrant its stocks? A. When a Corporation warrants its stocks, it lists the stockholder names as well as the number and type of stocks each stockholder owns at the time that the stockholders' agreement is signed. This warranty is beneficial when the stockholders may want some confidence as to how many stocks of the Corporation are issued and who owns those stocks.
Will the Stockholders warrant that they are the sole beneficial owners of their Stocks?		Q. Why do we need Stockholders to warrant that they are the beneficial owners of their stocks? A. Each stockholder may confirm that they are the beneficial owner of their stocks. This means that that no other person has an interest in those stocks nor are they held in trust for someone else. This warranty can provide some additional confidence to other stockholders and creditors regarding who "really" owns and controls the Corporation.

First Stockholder

Number of Stocks:		(eg. 1000, etc.)
Class of Stocks:		(Class "A" Voting, Class "B" Non-Voting, etc.)

Second Stockholder

Number of Stocks:
Class of Stocks:

Third Stockholder

Number of Stocks:
Class of Stocks:

Fourth Stockholder

Number of Stocks:
Class of Stocks:

Fifth Stockholder

Number of Stocks:
Class of Stocks:

Sixth Stockholder

Number of Stocks:
Class of Stocks:

Seventh Stockholder

Number of Stocks:
Class of Stocks:

Eighth Stockholder

Number of Stocks:
Class of Stocks:

Ninth Stockholder

Number of Stocks:
Class of Stocks:

Tenth Stockholder

Number of Stocks:
Class of Stocks:

Eleventh Stockholder

Number of Stocks:
Class of Stocks:

Twelfth Stockholder

Number of Stocks:
Class of Stocks:

Thirteenth Stockholder

Number of Stocks:
Class of Stocks:

Fourteenth Stockholder

Number of Stocks:
Class of Stocks:

Fifteenth Stockholder

Number of Stocks:
Class of Stocks:

Directors of Corporation

How do you want to structure the board of directors? Q. Why would I want the stockholders' agreement to provide direction on Director selection? A. In a small corporation where one person may own over 50% of the stocks, a majority stockholder can be prevented from electing every Director, simply by virtue of their majority ownership. Depending upon your jurisdiction, you may have certain options in determining the Corporation's Directors. For example, the stockholders might each appoint one Director. This option will work better when there is a smaller number of stockholders and you want each stockholder to have equal power.

Alternatively, the stockholders may agree to elect a list of specified Directors. There might be ten stockholders, but all the stockholders might agree to have three specified Directors. This last option may be beneficial when the stockholders acknowledge that the majority stockholder should have greater representation but the minority shareholders each want a Director on the board to ensure their interests are protected.

It should be noted that all Directors have a duty to act in the best interest of the Corporation no matter how they were elected or which group of stockholders they are intended to represent.
Ensure you do not appoint more directors than allowed by your corporate constitution (articles, charter, etc.)
Each Stockholder appoints one director
Stockholders agree to elect specified directors
Do not Specify
Other

Stockholders agree to elect specified directors?

Number of Directors:

First Director

Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?

Second Director

Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?

Third Director

Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?

Fourth Director

Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?

Fifth Director

Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?

Sixth Director

Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?

Seventh Director

Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?

Eighth Director

Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?

Ninth Director

Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?

Tenth Director

Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?

Eleventh Director

Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?

Twelfth Director

Name:
Date of Appointment:
Date of appointment:
Annual remuneration:
How much?

Describe the structure of the board of directors:

(E.g., There will be 3 directors, and they will be selected by a certain person.)

Specify Alternate Directors in case there is a vacancy on the Board? Q. Why would I want Alternative Directors specified? A. In case there is a vacancy on the Board of Directors, the stockholders might want to identify alternate or new Directors. The vacancy could be temporary or permanent. This clause helps the Stockholders to continue to control the appointment of Directors in the situation where one of the "specified" Directors is unable to continue to be on the Board of Directors.

Number of Alternate Directors:
Name alternate directors in order of preference.

First Alternate Director

Name:

Second Alternate Director

Name:

Third Alternate Director

Name:

Fourth Alternate Director

Name:

Fifth Alternate Director

Name:

Sixth Alternate Director

Name:

Seventh Alternate Director

Name:

Eighth Alternate Director

Name:

Ninth Alternate Director

Name:

Tenth Alternate Director

Name:

Eleventh Alternate Director

Name:

Twelfth Alternate Director

Name:

Officers of the Corporation

Specify who will be the officers of the Corporation?	Q. Why would I want to specify the Officers of the company? A. Specifying the Officers of the Corporation may prevent subsequent Stockholders from firing the Officers even if they acquire a majority stock or control of the Board of Directors. This may provide a level of managerial consistency to the company. However, for the same reason, specifying the Officers may also prevent the company from attracting sophisticated institutional investors who want to install their own management team to run the Corporation.
Check the officers you wish to specify:	President Vice-President
	Treasurer Secretary
	Other officer

President
Name:
Term:		e.g. Sept. 1, 2004 to Sept. 1, 2005
Per annum salary:

Vice-President
Name:
Term:		e.g. Sept. 1, 2004 to Sept. 1, 2005
Per annum salary:

Treasurer
Name:
Term:		e.g. Sept. 1, 2004 to Sept. 1, 2005
Per annum salary:

Secretary
Name:
Term:		e.g. Sept. 1, 2004 to Sept. 1, 2005
Per annum salary:

Other Officer
Name of Office:
Name of Officer:
Term:		e.g. Sept. 1, 2004 to Sept. 1, 2005
Per annum salary:

Management of the Corporation Q. Why do I need to decide management issues in the Stockholders' Agreement? A. Specifying management issues in the Stockholders' Agreement preserves the right of the existing Stockholders to determine issues vital to the Corporation. If these issues are not specified in the Agreement, then the Board of Directors will be able to change and manage the Corporation as it sees fit. If you believe that the Stockholders are in a better position to determine matters of importance to the Corporation than the Directors are, you should specify all the terms you deem important to the long term health of the Corporation.

Select options for the management of the Corporation from the following list.

Specify auditor of the Corporation Q. What is an auditor? A. An auditor is a qualified accountant who performs a systematic examination of the accounting records of a corporation in order to ensure accuracy and compliance with established accounting policies and procedures.

Name of auditor:

Specify bank of the Corporation

Name of bank:

Corporation will not make capital expenditures of more than a certain amount without Stockholder approval Q. What is a capital expenditure and why would I want to have Stockholder approval to buy or dispose of them? A. A capital expenditure is money spent to acquire or upgrade physical assets such as buildings and machinery. Requiring Stockholder approval of large capital expenditures protects the Stockholders from the Corporation's employees or Officers putting too great of an investment into certain ventures without the Stockholders' approval. It protects the Stockholders' investment from the poor judgment of an Officer or employee. The amount of the limit will be dependent upon the size and resources of the Corporation as well as the Stockholders' confidence in its management.

Amount: (e.g. 10,000.00)

Corporation will not grant security interests in or encumber corporate property without Stockholder approval Q. What is a security interest? A. A security interest is an interest in corporate property that is granted to a creditor. This is normally used to obtain a loan that the creditor would not be willing to give without some sort of security. A security interest may also be created by an operation of law to ensure the performance of the obligation where a debtor has defaulted on a debt. Q. What does encumbering corporate property mean? A. If corporate property is encumbered it means that an interest in the property is granted to another party as security for the fulfillment of some obligation.

Corporation will not dispose of assets that are worth more than a certain amount without Stockholder approval Q. What is a corporate asset? A. A corporate asset is any property owned by the corporation. This includes, but is not limited to, money, real estate, and equipment.

Amount: (e.g. 250,000.00)

Corporation will not provide financial assistance to Stockholders, officers, directors or employees Q. What does financial assistance mean? A. Financial assistance refers to any gift of money, loan or guarantee of a loan that the corporation might provide to any shareholder, officer, director, or employee. This type of assistance would typically be expressly forbidden in the corporate bylaws or in the articles of incorporation. This does not include wages, salaries, benefits, or bonuses.

Corporation will not redeem stocks except as set out in this Agreement Q. What does redeem shares mean? A. Share redemption is when the Corporation purchases its own share from the market or from a shareholder. Q. How does a Corporation redeem stock? A. A corporation can redeem stock by repurchasing it from existing Stockholders and placing the stock back in the Corporation's name. This is done mostly by established Corporations. It is usually only done where the Corporation has enough cash to make the purchase while still covering operating expenses. Redeeming stocks transfers equity back into the Corporation, increasing the company's future value.

Corporation will not issue stocks after execution of this Agreement except as set out in this Agreement Q. What does issue shares mean? A. Issuing shares is where a Corporation places shares for sale either on the market or privately to individuals.

Corporation will not issue stocks for non-money consideration Q. When would a Corporation issue stock for non-money consideration? A. Corporations will sometimes issue stock for non-money considerations when they are trying to attract top level professionals and skilled workers to the Corporation or when they are trying to purchase property but do not have the capital to do so.

Restrict Corporation to specific business

What is the Corporation's business?

Prohibit Corporation from specific business

Type of business?

Add additional clauses about the management of the Corporation

How many?

First additional clause:

Second additional clause:

Third additional clause:

Fourth additional clause:

Capital requirements of the Corporation

If the Corporation requires additional funds to pay creditors or carry on business
Q. What is the difference between a Stockholder Loan and purchase of stocks? A. When a Stockholder purchases stocks, the Stockholder increases their equity in the company. When a Stockholder makes a Stockholder Loan to the company, it is a personal debt owed to the Stockholder by the company, as though both were private individuals. The debt must be repaid, but it does not increase the Stockholder's equity in the company.

Who will determine that the Corporation requires additional funds?

Preemptive Rights Q. What are pre-emptive rights? A. Pre-emptive rights give existing Stockholders the right to buy any newly issued stocks from the Corporation before it is sold to outside third parties. This protects existing Stockholders by allowing them to retain their percentage of ownership in the company. Disadvantages of pre-emptive rights are that they may cause long delays in the sale of stocks, and that they may discourage sophisticated institutional investors from investing because they may get a smaller proportionate stock of the Corporation than they want when the pre-emptive rights are exercised.

Will existing Stockholders get the first chance to buy new stocks of the Corporation?

Restrictions on Transfer or Disposal of Interest in Stocks

Are Stockholders prohibited from selling or transferring their stocks or any interest in their stocks?

Death or Incapacity of a Stockholder

If a Stockholder dies or becomes incapacitated

Dispute Resolution

How will disputes among Stockholders be resolved?

Q. What is the difference between mediation and arbitration? A. Mediation is a process by which a neutral third party, the mediator, assists the conflicting parties in negotiating an agreement regarding the issue in conflict. Arbitration is a process by which the conflicting parties present their conflict to an agreed upon neutral third party who, upon hearing from both parties, decides on how to resolve the issue. Q. When would the use of a mediator or arbitrator to settle disputes be beneficial? A. A mediator or arbitrator should be used when the parties are at a deadlock over an issue. Mediation and arbitration are superior processes when there is a long term relationship involved and the survival of the business relationship is desirable. If the dispute is not resolved and goes to court, a judge may decide on a compromise that is not desirable to either party, possibly to dissolve the company. But, if both parties agree to choose a neutral third party mediator or arbitrator to resolve the dispute, the business relationship may be able to continue successfully.

How will arbitrator be appointed?
How will mediator be appointed?


Name of arbitrator or firm that provides arbitration services:
Name of mediator or firm that provides mediation services:

Include shot gun?	Q. What is a "shotgun" clause? A. A "shotgun" clause provides an escape mechanism for Stockholders if there is a serious dispute that cannot be resolved. One Stockholder may offer to buy the other stockholder's stock for a certain price. A shotgun clause stipulates that the other stockholder may either sell his/her stock at that price, or buy the offering stockholder's stocks at that same price. This process provides incentive for the offering stockholder to name a fair price. However, if shareholders have unequal financial resources, one stockholder could specify an unfairly low price, knowing that the other stockholder cannot afford to buyout the offered stocks. The offerer could then turn around and buy the stocks of the weaker stockholder at the unnaturally low bid. The shotgun clause, therefore, might also require that a fair price be set for any buyout offer.
Include right of first refusal?	Q. What is a right of first refusal? A. A right of first refusal requires that when an existing Stockholder wants to sell his stocks, all stocks must first be offered to existing Stockholders on a pro rata basis, which enables the existing Stockholders to retain their percentage stake in the Corporation, before being sold to an outside third party. It also protects existing Stockholders from unwelcome new Stockholders. However, if the existing Stockholders cannot afford to buy the stocks, the stocks may still be sold to the third party and existing Stockholders may end up with a new co-owner. One shortcoming of the right of first refusal is that it may cause long delays in the sale of stocks.
Include Tag along rights?	Q. What are "piggyback" rights? A. A "tag-along" clause (also called "piggyback" rights) protects minority Stockholders in the event of a third party buyout. If a majority Stockholder sells his/her stocks to a third party, the minority Stockholder has the right to become part of the transaction and sell his/her stocks to the same third party purchaser at the same price and on similar terms. Thus, the third party, if they wish to purchase the stocks, must be prepared to purchase ALL of the outstanding stocks. The benefit to the minority Stockholder is that they can avoid being in business with an unwanted new co-owner. It also ensures that all Stockholders will receive similar buyout offers and protects small stockholders from being forced to accept much less attractive offers. A shortcoming of tag along rights is that it may cause long delays in the sale of stocks.

Valuation of stocks

Include a valuation clause?

Q. What is a valuation clause and why do I need it? A. A valuation clause provides a method to determine the value of the Corporation's stocks. Such a process is needed when Stockholders want to sell their stocks or when a Stockholder dies and the other Stockholders want to buy those stocks. Since most small corporations are private (not traded on a stock exchange) the stocks are hard to value without a predetermined method. Having this clause will reduce the disagreement and uncertainty that occurs when a Stockholder wants to buy or sell stocks.

The value will be set by: Q. Why would I need a professional valuator? A. Stocks that are not publicly traded on a stock market are hard to valuate because they are not easily convertible to cash. Valuating the stocks yourself may lead to a large over- or under-valuation of the stock price. Both mistakes can be detrimental to the company and to all affected Stockholders. A professional will give a more accurate valuation that is fair to all Stockholders. However, the valuation may be expensive so you must carefully consider whether or not to use a professional valuator.

Specify the current value of the stocks?
For each class of stock, list the value of one stock:

(e.g., Class A stocks have a value of $10.00 per stock. Class B stocks have a value of $5.00 per stock.)
What happens if Stockholders fail to set the value?
How will the Stocks be valued?

Who will pay for valuator?

Dividends Q. What is a dividend? A. A dividend is a stock of the Corporation's profits received by a Stockholder at specific intervals during the year. Dividends are paid on a per stock basis (e.g. $0.10 per stock) and are used to give Stockholders a positive return for holding onto Stocks. A corporation can pay out any percentage of its profits as dividends, but most pay out less than 100%, so the corporation has assets for capital expenditures, business growth, unexpected expenses, or business losses in subsequent years.

The Corporation is required to pay dividends with the profits?

Percentage of profits that will be paid as dividends?
Specify the amount:
How often will dividends be distributed?
Specify frequency:
Additional provisions for the distribution of dividends?
Describe additional provisions here:

Conflict of opportunities and non-competition

Include a non-compete clause?	Q. What is a non-compete clause? A. A non-compete clause prohibits Stockholders from competing with the Corporation while they are owners in the Corporation and for a short period after they have left the Corporation. In a small corporation, customers deal closely with the Stockholders. A non-compete clause prevents an influential Stockholder or former Stockholder from attracting customers away from the Corporation. A Stockholder that leaves the Corporation may also possess confidential information that can be used to advantage against the Corporation.
How long is each Stockholder prevented from competing with the Corporation after ceasing to be a Stockholder?
Include a non-solicitation clause?	Q. What is a non-solicitation clause? A. A non-solicitation clause prevents Stockholders or former Stockholders from inducing other Stockholders, Directors, Officers or employees of the Corporation to leave the Corporation or to compete against it. This clause prevents an influential Stockholder from stealing key employees.
How long is each Stockholder bound by the non-solicitation provision after ceasing to be a Stockholder?

Term of Agreement

When will Agreement take effect?
Agreement will take effect on:
When will Agreement end?	Q. When should my Stockholders Agreement end? A. The Stockholders' Agreement can end when all stockholders agree to end it, or on a specific date. The option to end it upon the agreement of all stockholders should only be used where there are a relatively small number of stockholders, the Corporation is not thinking of taking on new stockholders, and the stockholders have a good working relationship. Even one disgruntled stockholder could cause significant problems for the Corporation by refusing to terminate the agreement, even where it would in the best interests of the Corporation to do so. If there are a relatively large number of stockholders, or where the Corporation is trying to increase the number of stockholders, or if the potential exists for conflict among the stockholders, then the Stockholders' Agreement should probably be ended on a specific date.
Generally, agreements of this type may not be for more than 10 years. However, you can renew the agreement before the agreement expires.
Agreement will end on:

Signing Details

When will the Agreement be signed?

Stockholder Agreement - United States

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