I’m getting a lot of requests these days for information on and help with shareholder agreements, so I thought a post explaining what they are and how they work would be helpful.
Background
But before I start, I’d like to introduce you to two guys I suspect wish they’d had a shareholder agreement in place when they created their company: Craig Newmark and Jim Buckmaster, two of the three early shareholders of Craigslist. As I understand the case, the third shareholder decided to leave the company, and sold his shares to eBay. As far as I can tell, there was no shareholder agreement in place at the time, and so there was no transfer restriction on his shares, and presumably Craig and Jim had no right of first refusal to buy those shares before they were sold to eBay (I have no idea whether they would have bought them, but I assume so). Google “eBay Craigslist lawsuit” to see the (very expensive) results. Good times. For the lawyers. For Craig and Jim, not so much, I’m guessing.
(Incidentally, Jim keynoted mesh07 and was one of our favourite keynotes ever, and a very gracious guest.)
(Finish reading this post on Hyndman | Law).
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Rob,
You provide a useful summary on the shareholder agreement (SA). I think it might be even more useful to provide (on your site) different examples. I am not suggesting a do-it-yourself approach but examples that illustrate the complexities at different stages. For instance, in a past venture the first stage funding was an LP and the SA was pretty simple. The second round was from big institutional VCs, they employed only the biggest accountants and lawyers, and the resulting SA and other documents were daunting. (A pet beef of mine is that all that expensive work did nothing positive to advance the venture, and ultimately nothing to alter the outcome.)
Just a thought.
John.
That’s a great idea, John. For the time being I’m focusing on issues of more pressing interest to early stage companies, but that would a great topic to cover. Thanks for the suggestion.
A bluntly enlightening read on SAs, thank-you.
This is of particular interest to ambitious young startups assembling a team of co-founders.
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