Shareholder Agreement - California

SHAREHOLDER AGREEMENT

(California Template)

TABLE OF CONTENTS

1. Document Header
2. Definitions

3. Operative Provisions
   3.1 Capitalization and Share Issuance
   3.2 Transfer Restrictions
   3.3 Pre-Emptive Rights
   3.4 Drag-Along / Tag-Along
   3.5 Information & Inspection Rights
   3.6 Board Composition & Voting Agreements

4. Representations & Warranties

5. Covenants & Restrictions
6. Default & Remedies
7. Risk Allocation
8. Dispute Resolution
9. General Provisions
10. Execution Block

1. DOCUMENT HEADER

SHAREHOLDER AGREEMENT (this “Agreement”) is made and entered into as of [EFFECTIVE DATE] (the “Effective Date”) by and among:

(a) [COMPANY NAME], a corporation organized under the laws of California (the “Company”); and

(b) the Persons listed on Schedule A hereto (each, a “Shareholder” and, collectively, the “Shareholders”).

Recitals

A. The Company has authorized the issuance of shares of its capital stock (the “Shares”).
B. The Shareholders desire to set forth their respective rights and obligations concerning the Company and the Shares.
C. In consideration of the mutual covenants herein, the Parties agree as follows:

2. DEFINITIONS

“Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with such Person.

“Agreement” has the meaning set forth in the opening paragraph.

“Arbitration Rules” means the [American Arbitration Association (AAA) Commercial Arbitration Rules / UNCITRAL Rules / other], as amended from time to time.

“Board” means the Company’s board of directors.

“Business Day” means any day other than a Saturday, Sunday, or legal holiday in California.

“Company” has the meaning set forth in the Preamble.

“Confidential Information” means all non-public information regarding the Company or the Shareholders, whether oral or written, in any form.

“Drag-Along Right” has the meaning given in Section 3.4(a).

“Effective Date” has the meaning set forth in the Preamble.

“Exempt Issuance” means any issuance of Shares (i) pursuant to board-approved equity incentive plans, (ii) upon conversion of outstanding convertible securities, or (iii) as otherwise unanimously approved by the Shareholders.

“Injunctive Relief” means temporary, preliminary, or permanent injunctive relief or specific performance.

“Law” means any statute, rule, regulation, ordinance, or other binding requirement of any governmental authority.

“Person” means an individual, partnership, corporation, limited liability company, trust, or other entity.

“Shares” has the meaning set forth in the Recitals.

“Tag-Along Right” has the meaning given in Section 3.4(b).

“Transfer” means any sale, assignment, pledge, encumbrance, or other disposition, whether voluntary or involuntary.

[Add further definitions as necessary.]

3. OPERATIVE PROVISIONS

3.1 Capitalization and Share Issuance

(a) Authorized Shares. The authorized capital of the Company consists of [NUMBER] shares of [CLASS] common stock, par value [$0.0001] per share, of which [NUMBER] are issued and outstanding as of the Effective Date.

(b) Issuance Approval. The Company shall obtain Board approval before issuing additional Shares. If its articles expressly require shareholder approval for an issuance under Cal. Corp. Code § 204(a)(9), it shall obtain the approval specified in those articles. No shareholder approval requirement is created by this subsection alone.

3.2 Transfer Restrictions

(a) General Lock-Up. No Shareholder may Transfer any Shares except in compliance with this Agreement and applicable Law. The Company and the Shareholders shall implement the agreed transfer restrictions through the governing documents and the notices required by Cal. Corp. Code § 418. This transfer covenant does not restrict the Board's statutory management authority under § 300(a).

(b) Right of First Refusal (“ROFR”). Prior to any permitted Transfer to a third party, the selling Shareholder shall deliver a written offer (“Transfer Notice”) to the Company and the non-selling Shareholders. The Company (first) and the non-selling Shareholders (second) shall have an aggregate [30]-day period to elect to purchase all (but not less than all) of the offered Shares on the same terms.

(c) Permitted Transfers. The ROFR shall not apply to Transfers (i) among Affiliates, (ii) to immediate family members for estate planning, or (iii) otherwise unanimously approved by the Shareholders.

(d) Notation Requirement. The Company shall conspicuously state the fact that the Shares are subject to transfer restrictions on each certificate, initial transaction statement, and required written statement, as applicable under Cal. Corp. Code § 418(a). A transfer restriction not stated as required by § 418(a) is unenforceable against a transferee without actual knowledge under § 418(b). If the Company is a statutory close corporation, its share certificates must also carry the legend prescribed by § 418(c).

3.3 Pre-Emptive Rights

Each Shareholder shall have the right, but not the obligation, to purchase its pro rata share of any new equity securities issued by the Company, subject to customary exceptions for Exempt Issuances. The Company shall provide at least [15] Business Days’ written notice before closing any such issuance.

3.4 Drag-Along / Tag-Along

(a) Drag-Along. If the threshold holders approve a bona fide sale under the governing documents and applicable law, each bound Shareholder shall take the expressly required actions. No dragged Shareholder shall be required, unless separately agreed for additional consideration, to give business representations, enter a noncompetition or employment covenant, accept joint liability, bear liability exceeding that Shareholder’s proceeds, or receive different per-share consideration from similarly situated holders.

(b) Tag-Along. If any Shareholder (the “Selling Holder”) proposes to Transfer more than [20 %] of the outstanding Shares to a third party in a single transaction or series of related transactions, each other Shareholder may participate on a pro rata basis (the “Tag-Along Right”).

3.5 Information & Inspection Rights

The Company shall deliver to each Shareholder: (i) annual audited financial statements within [120] days after fiscal year-end; (ii) quarterly unaudited statements within [45] days after each fiscal quarter; and (iii) reasonable access to books and records during normal business hours upon [5] Business Days’ notice, subject to a confidentiality undertaking.

3.6 Board Composition & Voting Agreements

Close-corporation condition: Cal. Corp. Code § 300(b) protects a shareholder agreement that limits Board discretion only if the Company is a statutory close corporation under § 158. That status requires the prescribed shareholder limit and the statement “This corporation is a close corporation” in its articles. For any other corporation, the Board retains the authority described in § 300(a); shareholder approval requirements for corporate action must be placed in the articles as permitted by § 204(a)(9). Apply any provision below consistently with the Company's actual articles and status.
(a) Board Size. The Board shall consist of [NUMBER] directors.

(b) Designation Rights. Shareholders holding at least [X %] of the Shares may designate [ONE] nominee. The Company and bound Shareholders shall take the lawful nomination and voting actions stated here, but designation does not itself appoint or remove a director; removal and vacancy action must comply with applicable law and the governing documents.

(c) Voting Agreement. Each Shareholder shall vote its Shares, or cause them to be voted, to give effect to the Board composition provisions of this Section.

4. REPRESENTATIONS & WARRANTIES

4.1 Company Representations

The Company represents and warrants to each Shareholder that, as of the Effective Date:
(a) Organization; Good Standing. The Company is duly organized, validly existing, and in good standing under the Laws of California;
(b) Authorization. The execution, delivery, and performance of this Agreement have been duly authorized;
(c) No Conflict. The execution and performance do not violate any charter document, Law, or material contract binding upon the Company;
(d) Valid Issuance. The Shares issued to the Shareholders have been duly authorized and validly issued, fully paid, and non-assessable.

4.2 Shareholder Representations

Each Shareholder, severally and not jointly, represents and warrants to the Company and the other Shareholders that:
(a) Authority. Such Shareholder has full power and authority to execute and deliver this Agreement;
(b) Sophistication. Such Shareholder is an informed and sophisticated investor capable of evaluating the risks of an investment in the Company; and
(c) No Litigation. There is no pending action that would adversely affect such Shareholder’s ability to perform hereunder.

4.3 Survival

The Parties shall state the survival period and recourse for each representation in a schedule. Do not use indefinite survival without analyzing the governing law’s accrual, repose, and contractual-limitations rules.

5. COVENANTS & RESTRICTIONS

5.1 Affirmative Covenants of the Company

(a) Legal Compliance. The Company shall at all times comply with applicable Laws;
(b) Maintenance of Books. The Company shall maintain complete and accurate books of account in accordance with [GAAP/IFRS];
(c) Insurance. The Company shall maintain director & officer (D&O) liability insurance with policy limits of at least [$____].

5.2 Negative Covenants

To the extent the Company's articles validly require shareholder approval for these corporate actions under Cal. Corp. Code § 204(a)(9), the Company shall obtain the approval specified in those articles before it:
(i) Amend its charter documents;
(ii) Make any dividend or distribution other than pro rata;
(iii) Enter into any transaction with an Affiliate, except on arms-length terms;
(iv) Incur indebtedness in excess of [$____] in any fiscal year.

5.3 Notice & Cure

A Party shall give the notices expressly required by the applicable schedule after becoming aware of a specified breach. No breach receives an automatic cure period; each period must account for the obligation, transaction deadline, legal deadline, and whether cure is possible.

6. DEFAULT & REMEDIES

6.1 Events of Default

An “Event of Default” occurs only for a material breach or other event expressly designated in a schedule, after any specifically stated cure period, and only to the extent enforcement is not stayed, invalidated, or limited by insolvency or other applicable law.

6.2 Remedies

Upon an Event of Default, a non-defaulting Party may exercise only a remedy expressly stated in a schedule and permitted by law. No remedy automatically suspends voting or statutory inspection rights, effects a forfeiture, or compels a discounted Transfer. Any buyout must specify the trigger, valuation date, appraiser process, payment security, closing conditions, and dispute procedure.

7. RISK ALLOCATION

7.1 Selected Indemnities

No broad mutual indemnity applies by default. Any selected indemnity must identify the indemnifying Person, indemnified Person, covered claim, recoverable losses, exclusions, survival period, and recourse source. No Shareholder indemnifies another Party merely because of its status as a Shareholder.

7.2 Procedures

For a selected indemnity, the applicable schedule shall address notice, prejudice, defense control, conflicts, settlement consent, mitigation, insurance and tax offsets, and subrogation.

7.3 Liability Caps

The applicable schedule shall state the basket, cap, escrow, setoff, exclusive-remedy rule, and carveouts for each surviving claim category. No claim is uncapped or capped by default.

7.4 Insurance Offset

Any insurance offset applies only as stated in the selected indemnity, net of reasonable collection costs, deductibles, premium increases, and repayment obligations specified there.

7.5 Force Majeure

Force majeure does not excuse payment, compliance with law, confidentiality, or voting or transfer steps tied to a transaction deadline. It may excuse only a specifically identified nonmonetary covenant while an event beyond the affected Party’s reasonable control actually prevents performance, subject to notice, mitigation, and any outside date.

8. DISPUTE RESOLUTION

8.1 Governing Law

This Agreement and any dispute arising hereunder shall be governed by and construed in accordance with the Laws of California, without regard to its conflict-of-laws principles.

8.2 Exclusive Jurisdiction

Subject to Section 8.3, the Parties irrevocably submit to the exclusive jurisdiction of the state or federal courts located in [County], California for any suit, action, or proceeding arising out of or relating to this Agreement.

8.3 Arbitration (Preferred)

(a) Any dispute not resolved within [30] days after written notice of dispute shall be finally settled by binding arbitration administered by [AAA / other] in accordance with the Arbitration Rules then in effect.
(b) Seat of Arbitration: [City], California.
(c) Number of Arbitrators: [ONE / THREE].
(d) Language: English.
(e) Consolidation: Multiple arbitration proceedings arising out of or relating to this Agreement may be consolidated at the request of any Party.
(f) Judgment on the award may be entered in any court of competent jurisdiction.

8.4 Injunctive Relief Carve-Out

Notwithstanding Section 8.3, any Party may seek temporary, preliminary, or permanent Injunctive Relief from a court of competent jurisdiction to prevent irreparable harm.

8.5 California State-Court Jury Rights

This document does not itself waive a jury trial in a California state court. After an action is filed there, a party may waive that right only through a method permitted by applicable law.

9. GENERAL PROVISIONS

9.1 Amendments and Waivers

No amendment or waiver of any provision of this Agreement shall be effective unless in writing and signed by (i) the Company and (ii) Shareholders holding at least [THRESHOLD %] of the Shares; provided that no amendment that disproportionately and adversely affects any Shareholder relative to other Shareholders shall be effective against such Shareholder without its written consent.

9.2 Assignment

No Party may assign or delegate this Agreement or any rights or obligations hereunder without the prior written consent of the Company and Shareholders holding at least [THRESHOLD %] of the Shares, except to a Permitted Transferee that becomes a party hereto.

9.3 Successors and Assigns

This Agreement shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns.

9.4 Severability

If any provision is held invalid or unenforceable, such provision shall be reformed to the minimum extent necessary, and the remaining provisions shall remain in full force and effect.

9.5 Entire Agreement

This Agreement (including all schedules and exhibits) constitutes the entire agreement among the Parties with respect to the subject matter hereof and supersedes all prior agreements, understandings, and negotiations.

9.6 Counterparts; Electronic Signatures

This Agreement may be executed in any number of counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. Signatures delivered by facsimile, PDF, or DocuSign ® (or similar) shall be effective.

9.7 Notices

All notices shall be in writing and deemed given: (i) when delivered personally; (ii) on the next Business Day after being sent by a recognized overnight courier; or (iii) on the third Business Day after being mailed by certified mail, return receipt requested, to the addresses set forth on Schedule B, or to such other address as a Party may designate by notice.

9.8 No Third-Party Beneficiaries

Except as expressly provided herein, this Agreement is for the sole benefit of the Parties and their respective successors and permitted assigns and does not confer any rights on any other Person.

10. EXECUTION BLOCK

IN WITNESS WHEREOF, the Parties have executed this Shareholder Agreement as of the Effective Date.

[Repeat Shareholder signature blocks as necessary.]

Schedule A – Shareholder Ownership

Schedule B – Notice Addresses