I’m often asked by clients whether startups should have a separate stockholders’ agreement among the founders. The answer largely depends on whether they have or will have certain other startup documents in place.
First, some background on stockholders’ agreements. These are contracts entered into by owners of privately held companies to manage the following governance and ownership issues:
- Board Composition: Every corporate statute provides that the business affairs of a corporation are to be managed by a board of directors, which sets policy, makes major decisions and appoints officers to whom the day-to-day management of the company is delegated. So it makes sense to determine in advance the size of the board, who the directors will be and how those directors could be removed and replaced. Without an agreement, the default standard would be majority rule, meaning that one or more stockholders with a majority of the outstanding shares would be able to elect the entire board. A stockholders’ agreement ensures board participation in the manner envisioned by the founders.
Continue Reading Stockholders’ Agreements for Startups: When to Sign, When to Skip
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