An Analysis of Shareholder Agreements

33 Pages Posted: 3 Nov 2008

See all articles by Gilles Chemla

Gilles Chemla

Imperial College Business School; CNRS ; Centre for Economic Policy Research (CEPR)

Michel Gille

affiliation not provided to SSRN

Alexander Ljungqvist

Centre for Economic Policy Research (CEPR); Swedish House of Finance; European Corporate Governance Institute (ECGI)

Multiple version iconThere are 4 versions of this paper

Date Written: January 2002

Abstract

Shareholder agreements govern the relations among shareholders in privately-held companies, such as joint ventures or venture capital-backed firms. We provide an economic explanation for the use of put and call options, preemption rights, catch-up clauses, drag-along rights, demand rights, andtag-along rights in shareholder agreements. We view these clauses as a response to a problem of dynamic, double moral hazard, whereby the value of the venture depends on ex ante investments and ex post transfers. Contract clauses i) preserve the incentives to make ex ante investments andii) minimize ex post transfers. We extend our framework to discuss the use of other clauses, such as the option to extend the life of a business alliance.

Keywords: Shareholder Agreements, Put Options, Call Options, Pre-emption Rights, Catch-up Clauses, Drag-along Rights, Demand Rights, Tag-along Rights

Suggested Citation

Chemla, Gilles and Gille, Michel and Ljungqvist, Alexander and Ljungqvist, Alexander, An Analysis of Shareholder Agreements (January 2002). NYU Working Paper No. FIN-01-066, Available at SSRN: https://ssrn.com/abstract=1294611

Gilles Chemla (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
London SW7 2AZ, SW7 2AZ
United Kingdom
+44 207 594 9161 (Phone)
+44 207 594 9210 (Fax)

CNRS ( email )

Dauphine Recherches en Management
Place du Marechal de Lattre de Tassigny
Paris, 75016
France
331 44054970 (Phone)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Michel Gille

affiliation not provided to SSRN

No Address Available

Alexander Ljungqvist

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

European Corporate Governance Institute (ECGI)

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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