Enforceability and Effectiveness of Typical Shareholders Agreement Provisions

This post comes to us from Nancy Sanborn and Alexander Macleod. Ms. Sanborn and Mr. Macleod are lawyers at Davis Polk & Wardwell LLP and, respectively, Chair and Secretary of the Corporation Law Committee of the Association of the Bar of the City of New York.

The Corporation Law Committee of the Association of the Bar of the City of New York prepared a report on The Enforceability and Effectiveness of Typical Shareholders Agreement Provisions, which was published in the August 2010 issue of The Business Lawyer.

In this report, the Corporation Law Committee reviews provisions that are often contained in shareholders agreements, including the composition of the corporation’s board of directors and related corporate governance matters, share transfer provisions, tag-along and drag-along rights, mechanisms for resolving deadlocks, preemptive rights and other provisions.  Although “freedom of contract” is the legal principle that governs many provisions to some extent, there are numerous legal consideration that affect their enforceability and effectiveness.  The report describes the statutory and case law that apply to each (focusing on Delaware and New York law) and offers drafting tips to avoid traps for the unwary.

Although each shareholders agreement is unique, the issues addressed by this report are common.  This report should therefore be a “must read” for any lawyer drafting or negotiating a shareholders agreement.

The full report is available for download here.

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