Shareholders’ Agreement Without Investors

Note: The “Shareholders’ Agreement (without investors)” is the document formerly known as the “Founders’ Agreement”. We have renamed it to avoid confusion since it is, in fact, a shareholders’ agreement. We elaborate more on the sequential relationship of our shareholders’ agreements here.

When you join forces with your co-founders to start a new business, legal stuff is probably one of the last things you want to spend time on – especially the sometimes sensitive subject of commitment, cooperation and ownership. Nevertheless, agreeing on these topics from day one may save you a lot of arguments and headache down the road. That’s why you should have a shareholders’ agreement, also called a founders’ agreement.

A shareholders’ agreement without investors is very similar to a SHA with investors. It is still a SHA in the sense that it’s an agreement between the shareholders. Without any external shareholders some of the more important topics in the agreement are dedication, vesting, share transfers and decision-making (rather than regulating the relationship between founders and investors).

Standard Shareholders’ Agreement Without Investors Terms

This is a very brief summary of some of the key terms in the complete shareholders’ agreement that you can download below.

Participation Right: The shareholders will have the right, but not the obligation, to participate in subsequent issuances of any equity securities on a pro rata basis.
Protective Provisions: A qualified founder majority is required to

  1. amend the Articles;
  2. adversely change the rights of the Shares;
  3. declare or pay any dividend or make a decision on other asset distributions;
  4. hire, fire or amend the terms of the employment contract of the CEO, [Name of physical founder] or [Name of physical founder]; and
  5. enter into any agreement or assignment with a Shareholder or its immediate family member or any entity controlled by a Shareholder and/or its immediate family member(s).
Board of Directors: Each founder shall elect one director.
Right of First Refusal: Transfer of shares in the company is subject to other shareholders’ right of first refusal.
Drag-Along: In the event a qualified shareholder majority accepts an offer to sell or otherwise transfer their shares to an independent bona fide third party, all other shareholders consent to sell or otherwise transfer their shares on the same terms and conditions as the majority shareholders who have accepted the offer.
Tag-Along: The shareholders shall have the right to participate in any sale or other transfer of shares in the same proportion and on the same terms and conditions as offered to the selling shareholder.
Vesting: Shares held by the Founders and other key persons will vest over 4 years (the “Vesting Period”) as follows: 25% to vest one year after closing and the remaining 75% to vest in equal monthly installments under the following 36 months. If a Founder (or other key person) leaves the Company during the Vesting Period his/her shares may be purchased by the Company primarily and the other shareholders secondarily pro rata as set forth below.

Vested shares Unvested shares
Good leaver Stays with Founder Sold for what the Founder once paid for the shares until the first anniversary and for fair market value thereafter
Bad leaver Stays with Founder Sold for what the Founder once paid for the shares
Non-Compete and Non-Solicitation: Each founder is required to sign a non-competition and a non-solicitation commitment, valid until one year from the date he/she ceases to be an employee or a director of or a consultant to the company, whichever is the latest.
Intellectual Property: The founders shall assign all relevant intellectual property to the company.

For the complete version of the shareholders’ agreement, please download the document below.

/Erik Byrenius





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