An Analysis of Shareholder Agreements
35 Pages Posted: 10 Feb 2002
Date Written: July 2004
Shareholder agreements govern the relations among shareholders in privately-held firms, such as joint ventures or venture capital-backed firms. We provide an explanation for the use of put and call options, tag-along rights, drag-along rights, demand rights, piggy-back rights, and catch-up clauses in shareholder agreements. We view these clauses as serving (1) to induce the parties to make ex ante investments, (2) to preclude ex post transfers by the party that has the ability to engage in such transfers, and (3) to achieve the efficient ex post allocation of stakes in the firm.
Keywords: Shareholder Agreements, Put Options, Call Options, Pre-emption Rights, Catch-up Clauses, Drag-along Rights, Demand Rights, Tag-along Rights
JEL Classification: G34
Suggested Citation: Suggested Citation