Shareholders’ Agreement
This Shareholders’ Agreement (this Agreement) is made on [date] by and among:
(1) Compliance Example Limited (合规示例有限公司), a private company limited by shares incorporated in Hong Kong under the Companies Ordinance (Cap. 622) with company number [•] and registered office at [•] (the Company); and
(2) The persons whose names and details are set out in Schedule 1 (each a Shareholder and together the Shareholders).
Recitals
A. The Shareholders are, or on Completion will become, the legal and beneficial owners of all the issued shares of the Company.
B. The parties wish to regulate their relationship as shareholders of the Company, the management of the Company and certain matters relating to the Company and its business.
It is agreed as follows:
- Interpretation and definitions
1.1 In this Agreement, unless the context otherwise requires:
Affiliate means, with respect to any person, any other person directly or indirectly controlling, controlled by or under common control with such person, where control means the power (whether by ownership of shares, contract or otherwise) to direct the management or policies of a person, or to appoint or remove a majority of its directors.
Articles means the articles of association of the Company as amended from time to time.
Board means the board of directors of the Company from time to time.
Business means the business of the Company as described in Schedule 4, and any other business ancillary or related thereto as approved in accordance with this Agreement.
Business Day means a day (other than a Saturday, Sunday or public holiday) on which banks are open for general business in Hong Kong.
Completion means the completion of the transactions contemplated by clause 2 (Conditions precedent).
Deed of Adherence means a deed substantially in the form set out in Schedule 3 by which a person agrees to be bound by this Agreement.
Director means a director of the Company from time to time.
Encumbrance means any mortgage, charge, pledge, lien, option, restriction, right of pre-emption, assignment by way of security, retention of title or other security interest or third-party right or interest of any kind.
HK$ means Hong Kong dollars, the lawful currency of Hong Kong.
Investor means each Shareholder identified as an Investor in Schedule 1, and Investor Majority means Shareholders holding at least [50%/60%/75%] of the Shares held by Investors, as specified in Schedule 1.
Law means all applicable laws, statutes, regulations, ordinances, judgments, orders and rules of any competent court or governmental authority having the force of law in Hong Kong or any other jurisdiction applicable to the Company or a Shareholder.
Ordinary Shares means ordinary shares in the capital of the Company having the rights set out in the Articles.
Qualifying IPO means the admission of the Company (or its holding company) to listing on the Main Board or GEM of the Hong Kong Stock Exchange or on another internationally recognized securities exchange, with a public float raising not less than HK$[•] and an implied pre-money equity valuation of not less than HK$[•].
Reserved Matters means the matters listed in Schedule 2.
Shares means the issued shares in the capital of the Company from time to time and Share means any one of them.
Shareholder Loan means any loan made by a Shareholder to the Company pursuant to clause 6.6.
Transfer includes any sale, assignment, transfer, grant of any option or Encumbrance over, or other disposal of legal or beneficial ownership, whether voluntary or involuntary.
1.2 In this Agreement: (a) references to clauses and Schedules are to clauses of and schedules to this Agreement; (b) the Schedules form part of this Agreement; (c) the singular includes the plural and vice versa; (d) references to a person include individuals, bodies corporate, partnerships and unincorporated associations.
- Conditions precedent and undertakings
2.1 Conditions precedent. Completion of any share subscription or transfer contemplated by the parties in connection with this Agreement is conditional upon:
(a) the adoption by the Company of Articles consistent with this Agreement;
(b) all necessary corporate approvals of the Company and the Shareholders having been obtained;
(c) execution and delivery of this Agreement by all Shareholders and the Company, and any Deeds of Adherence by any incoming Shareholders; and
(d) all required consents and approvals from any governmental authority or third party having been obtained or the relevant waiting periods having expired.
2.2 Precedence and alignment. As between the parties, this Agreement prevails in case of inconsistency with the Articles. The Shareholders shall exercise all voting rights and other powers available to them to procure that the Articles are, and remain, consistent with this Agreement.
2.3 Good faith cooperation. The parties shall in good faith take all actions reasonably necessary to give effect to the provisions of this Agreement in compliance with Law.
- Representations and warranties
3.1 Each Shareholder represents to the Company and the other Shareholders that: (a) it has full power and authority to enter into and perform this Agreement; (b) this Agreement constitutes its valid and binding obligation enforceable in accordance with its terms; and (c) it is the legal and beneficial owner of the Shares set opposite its name in Schedule 1, free from Encumbrances, and no person has any right to acquire any of those Shares.
3.2 The Company represents to each Shareholder that: (a) it is duly incorporated, validly existing and in good standing under the Laws of Hong Kong; and (b) the execution and performance of this Agreement have been duly authorized.
- Corporate governance
4.1 Board composition. The Board shall consist of [•] Directors unless otherwise agreed by Investor Majority and Shareholders holding at least [•]% of all Shares. Subject to the foregoing:
(a) Shareholders holding a majority of the Ordinary Shares shall have the right to appoint [•] Director(s);
(b) the Investors (voting as a separate class) shall have the right to appoint [•] Director(s) (each an Investor Director); and
(c) [if applicable] the Founder(s), as defined in Schedule 1, shall have the right to appoint [•] Director(s).
Each appointing Shareholder may remove and replace its appointed Director(s) by written notice to the Company and the other Shareholders.
4.2 Chairperson; observer. The Board shall elect a chairperson from among the Directors. The chairperson shall not have a casting vote. Each Investor may designate a non-voting observer to attend Board meetings, subject to customary confidentiality undertakings.
4.3 Quorum and meetings. The Board shall meet at least [quarterly/monthly]. A quorum requires [a majority] of the Directors then in office, including at least one Investor Director (if any). If a meeting is inquorate due to the absence of an Investor Director, a reconvened meeting held not less than [7] Business Days later with proper notice shall be quorate if a majority of Directors is present, provided that no Reserved Matter is decided without the consent required by clause 5.
4.4 Voting. Each Director has one vote. Board decisions require a simple majority of Directors present and entitled to vote, except where a higher threshold is specified in this Agreement or the Articles.
4.5 Written resolutions. Board resolutions may be passed by unanimous written consent of all Directors then in office.
4.6 Management. The day-to-day management of the Company shall be vested in the chief executive officer, subject to the supervision of the Board and to Reserved Matters.
- Reserved Matters and shareholder voting
5.1 Reserved Matters. The Company and the Shareholders shall not take or permit any action in respect of any Reserved Matter without:
(a) Board approval including the affirmative vote of at least one Investor Director (if any); and
(b) approval of Shareholders holding not less than [75%] of all Shares in issue and, where specified in Schedule 2, the separate approval of the Investor Majority.
5.2 Shareholder undertakings. Each Shareholder shall exercise all voting rights and other powers available to it to give effect to clause 5.1 and to prevent the doing of any act that would contravene this Agreement.
- Share capital, funding, and pre-emption
6.1 Authorized capital; option pool. The share capital of the Company is as set out in Schedule 1. An employee equity incentive pool representing [•]% of the fully diluted share capital shall be established in accordance with a plan approved as a Reserved Matter.
6.2 Issue of new securities; pre-emption. Except with the prior approval required under clause 5, the Company shall not issue any Shares or securities convertible into or carrying rights to acquire Shares. Subject to customary exemptions (including issuances under the employee option plan, securities issued as consideration for an acquisition approved as a Reserved Matter, and securities issued in a Qualifying IPO), each Shareholder shall have a right of pre-emption on any proposed issue of equity securities pro rata to its then percentage holding of Shares, on the same terms offered to third parties.
6.3 Pre-emption process. The Company shall give written notice to Shareholders of the principal terms of the proposed issue and an election period of no less than [10–20] Business Days. Any unsubscribed securities may, within [30] days after the election period, be issued to third parties on terms no more favorable to such third parties.
6.4 Dividends. Subject to Law and the Articles, dividends shall be declared at the discretion of the Board, having regard to the Company’s distributable reserves, working capital requirements and agreed budget. Any dividends shall be paid pro rata to holdings of Shares as of the relevant record date.
6.5 Additional funding. If the Board determines that additional funding is required, it may propose, as a Reserved Matter, (a) an equity financing in accordance with clause 6.2, (b) third-party debt financing on arm’s length terms, and/or (c) Shareholder Loans.
6.6 Shareholder Loans. Shareholder Loans shall (a) be offered to all Shareholders pro rata to their Shareholdings, (b) bear interest at [•]% per annum (simple) unless otherwise unanimously agreed by the lending Shareholders, and (c) be subordinated to senior third-party debt if required by the Company’s lenders.
- Transfer of Shares
7.1 General prohibition. No Shareholder shall Transfer any Share except in accordance with this Agreement and the Articles. Any Transfer in breach is void as between the parties.
7.2 Lock-up. No Shareholder shall Transfer any Share within [12–24] months following Completion, except for Permitted Transfers under clause 7.3.
7.3 Permitted Transfers. A Shareholder may Transfer Shares at any time to an Affiliate, provided that the transferee executes a Deed of Adherence and the transferor remains jointly and severally liable for the transferee’s obligations. Any subsequent Transfer by the Affiliate to a non-Affiliate shall be subject to this clause 7.
7.4 Right of first refusal (ROFR). Subject to clauses 7.2 and 7.3, before Transferring any Shares to a bona fide third party, a selling Shareholder (Seller) must deliver a notice to the Company and the other Shareholders specifying the number of Shares proposed to be Transferred, the price and other material terms. The non-selling Shareholders shall have [10–20] Business Days to elect to purchase all or part of the Offered Shares pro rata to their existing Shareholdings (with over-allotment among electing Shareholders if any do not subscribe). If any Offered Shares remain after the ROFR period, the Seller may, within [30] days, Transfer such Shares to the third party on terms no more favorable than those offered to the Shareholders.
7.5 Tag-along rights. If a Shareholder or group of Shareholders proposes to Transfer, in one transaction or a series of related transactions, Shares representing [20%] or more of the issued share capital to a third party, each other Shareholder shall have the right to require the proposed purchaser to purchase from it up to the same proportion (on an as-converted basis) of its Shares at the same price and on the same terms.
7.6 Drag-along rights. If Shareholders holding at least [75%] of the Shares (including the Investor Majority) approve a bona fide sale of all (or substantially all) of the Shares or the Company’s business (a Drag Sale), then, upon written notice, all other Shareholders shall sell all their Shares to the proposed purchaser on the same terms, subject to customary minority protections: (a) representations limited to title and capacity; (b) several (not joint) liability; (c) pro rata indemnity or escrow for post-closing adjustments; and (d) identical per-Share consideration (subject to liquidation preferences, if any, set out in the Articles).
7.7 Involuntary Transfers. Any involuntary Transfer (including bankruptcy, liquidation or enforcement of Encumbrances) shall trigger the ROFR in clause 7.4.
7.8 Instruments and registration. The parties shall execute all instruments and do all acts necessary to effect a Transfer and procure prompt registration in the Company’s register of members, subject to the Articles.
- Information rights and inspection
8.1 Financial statements. The Company shall deliver to each Shareholder: (a) within [30] days after each month, unaudited monthly management accounts; (b) within [45] days after each quarter, unaudited quarterly financial statements; and (c) within [120] days after each financial year end, audited annual financial statements prepared in accordance with HKFRS (or other recognized standards).
8.2 Budget and business plan. At least [30] days prior to each financial year, management shall submit to the Board a draft annual budget and business plan for approval as a Reserved Matter.
8.3 Inspection. Upon reasonable prior notice, each Shareholder and its representatives may, at its own cost, inspect the Company’s books and records during normal business hours, subject to confidentiality and reasonable disruption limitations.
- Confidentiality; announcements
9.1 Confidentiality. Each party shall keep confidential all non-public information concerning the Company or another party obtained in connection with this Agreement and shall not disclose it except: (a) to its Affiliates and its and their officers, employees, auditors, advisors and financing sources on a need-to-know basis who are bound by confidentiality obligations; (b) as required by Law or a competent authority; (c) to prospective permitted transferees or investors who enter into confidentiality undertakings; or (d) information that is or becomes public other than as a result of a breach of this clause.
9.2 Public announcements. No public announcement concerning this Agreement or any transaction contemplated herein shall be made without the prior written consent of the Board, except as required by Law or a stock exchange.
- Non-compete and non-solicitation
10.1 Restrictive covenants. Each Founder identified in Schedule 1 undertakes that, for so long as he/she holds any Shares and for [12–24] months thereafter, he/she shall not, within [Hong Kong/any territory in which the Company conducts the Business at the relevant time], directly or indirectly: (a) engage in or be concerned with any business that competes with the Business; or (b) solicit or entice away any senior employee, key consultant or key customer or supplier of the Company with whom he/she had material dealings in the [12] months preceding the cessation of involvement. The parties acknowledge that these restrictions are reasonable and necessary to protect the Company’s legitimate interests, and agree that scope, duration and geography shall be interpreted to the minimum extent necessary for enforceability.
- Compliance and conduct of business
11.1 Compliance with Law. The Company shall conduct the Business in compliance with applicable Law, including anti-bribery and anti-corruption laws (including the Prevention of Bribery Ordinance (Cap. 201)), sanctions and export control laws, anti-money-laundering and data protection laws.
11.2 Related party transactions. Any transaction between the Company and a Shareholder or its Affiliate shall be on arm’s length terms and approved as a Reserved Matter if exceeding HK$[•].
11.3 Insurance. The Company shall maintain appropriate insurance customary for businesses of a similar nature and size, including directors’ and officers’ liability insurance in an amount of not less than HK$[•].
- Defaults and remedies
12.1 Events of Default. An Event of Default occurs if a Shareholder: (a) commits a material breach of this Agreement that is incapable of remedy or remains unremedied [20] Business Days after notice; (b) breaches clause 7 (Transfer of Shares); (c) becomes insolvent, is wound up or has a receiver appointed over substantially all assets; or (d) is subject to an involuntary Transfer in breach of this Agreement.
12.2 Remedies. Without prejudice to any other rights or remedies: (a) the non-defaulting Shareholders may seek specific performance and injunctive relief; and (b) in the case of a breach of clause 7, the non-defaulting Shareholders shall have an option, exercisable within [30] days after becoming aware of the breach, to require the defaulting Shareholder to sell all or part of its Shares to them pro rata at the lower of the price paid by the defaulting Shareholder for such Shares (as adjusted for splits/dividends) and the price offered to or received from a third party, in each case subject to compliance with Law.
- Deadlock and dispute resolution
13.1 Deadlock. A Deadlock arises if: (a) the Board fails to approve any Reserved Matter or annual budget within [30] days after first consideration; or (b) Shareholders fail to approve any Reserved Matter requiring shareholder approval within [30] days after Board approval. Upon a Deadlock, the matter shall be escalated to the chairperson of the Board and the Investor Majority (or their designees) for negotiation in good faith for [20] Business Days. Failing resolution, the Investor Majority may require: (i) referral to mediation administered by HKIAC; or (ii) initiation of a sale process for the Company under mutually agreed procedures; or (iii) suspension of the matter for the current financial year.
13.2 Arbitration. Any dispute, controversy or claim arising out of or in connection with this Agreement, including any question regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration administered by the Hong Kong International Arbitration Centre (HKIAC) under the HKIAC Administered Arbitration Rules in force when the Notice of Arbitration is submitted. The law of this arbitration clause shall be Hong Kong law. The seat of arbitration shall be Hong Kong. The tribunal shall consist of [one/three] arbitrator[s]. The language of the arbitration shall be English. Nothing in this clause prevents a party from seeking urgent interim or conservatory measures from the courts of Hong Kong.
- Term and termination
14.1 Term. This Agreement takes effect on the date first above written and continues in force until the earliest of: (a) a Qualifying IPO; (b) a sale of all or substantially all of the Shares or assets of the Company; or (c) the Company’s winding up.
14.2 Survival. Clauses 1, 7.9, 8, 9, 10 (for its stated duration), 11, 12, 13, 15, 16, 17 and 18 survive termination.
- Notices
15.1 Any notice under this Agreement shall be in writing and delivered by hand, courier or email to the address or email specified in Schedule 1 (or as updated by notice). Notices are deemed received: (a) if delivered by hand, at the time of delivery; (b) if sent by courier, on the second Business Day after dispatch; and (c) if sent by email, at the time of transmission provided no out-of-office or error message is received, and if sent outside business hours, at 9:00 a.m. on the next Business Day in the place of receipt.
- Miscellaneous
16.1 Assignment. No party may assign or Transfer its rights or obligations under this Agreement without the prior written consent of the Board and the Investor Majority, except for Permitted Transfers of Shares accompanied by a Deed of Adherence.
16.2 Entire agreement. This Agreement and the documents referred to in it constitute the entire agreement among the parties relating to its subject matter and supersede all prior agreements, understandings and arrangements relating to that subject matter.
16.3 Variation. No variation of this Agreement is effective unless in writing and signed by the Company and Shareholders holding at least [75%] of the Shares (including the Investor Majority), provided that no variation disproportionately and adversely affecting a class of Shareholders shall be effective without the consent of Shareholders holding at least [75%] of that class.
16.4 No partnership. Nothing in this Agreement creates a partnership, joint venture or agency relationship among the parties.
16.5 Further assurance. Each party shall, at its own cost, do all acts and execute all documents reasonably necessary to give full effect to this Agreement.
16.6 Severability. If any provision is or becomes invalid, illegal or unenforceable, it shall be deemed modified to the minimum extent necessary to make it valid, legal and enforceable, and the remaining provisions shall remain in full force and effect.
16.7 Counterparts; electronic signatures. This Agreement may be executed in any number of counterparts, each of which is an original and together constitute one instrument. Execution and delivery may be effected by electronic means.
- Governing law
This Agreement and any non-contractual obligations arising out of or in connection with it are governed by and construed in accordance with the laws of Hong Kong.
- Priority to Articles and voting undertaking
18.1 Each Shareholder undertakes to exercise its voting rights and other powers to ensure the Articles are and remain consistent with this Agreement and to procure any necessary amendments promptly.
18.2 In the event of any inconsistency between this Agreement and the Articles, the parties shall cooperate to rectify such inconsistency and, as between the parties, this Agreement shall prevail.
Schedule 1: Parties and initial shareholdings
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[Name], [ID/Registration No.], Address/Email: [•]
Shares: [•] Ordinary Shares ([•]%)
Capacity: [Investor/Founder/Employee]
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[Name] …
[Add as necessary]
Schedule 2: Reserved Matters
The following actions require approval under clause 5:
A. Share capital and corporate structure
- Any change to the Articles or share rights.
- Any issue, allotment, redemption, repurchase or buy-back of Shares or securities convertible into Shares, or the grant of any option or warrant, other than pursuant to the approved employee option plan within the agreed pool.
- Creation of any Encumbrance over the Company’s share capital.
- Any consolidation, subdivision, reduction or reorganization of share capital.
B. Business and operations
5. Any change to the nature or scope of the Business.
6. Approval of the annual budget and business plan, and any material deviation therefrom (exceeding [10–15]% in aggregate spending or capex categories).
7. Entry into or termination of any joint venture, partnership or strategic alliance.
8. Acquisition or disposal of any asset, business or company exceeding HK$[•] individually or HK$[•] in aggregate per financial year.
C. Finance
9. Incurrence of indebtedness or granting of any guarantee or indemnity exceeding HK$[•] (other than under the approved budget).
10. Capital expenditure exceeding HK$[•] not contemplated by the approved budget.
11. Declaration or payment of dividends or other distributions not in accordance with clause 6.4.
D. Material contracts and related party matters
12. Entry into, amendment or termination of any contract outside the ordinary course of business or with a contract value exceeding HK$[•].
13. Any transaction with a Shareholder or its Affiliate (related party transaction) exceeding HK$[•] or not on arm’s length terms.
E. Litigation and compliance
14. Commencing or settling any litigation, arbitration or regulatory proceeding involving claims exceeding HK$[•] or seeking injunctive relief (other than debt collection in the ordinary course).
15. Appointment or change of the Company’s auditors.
F. Management and personnel
16. Appointment or removal of the chief executive officer, chief financial officer or other key executives identified by the Board; approval of their remuneration and any material changes thereto.
17. Establishment or material amendment of any employee equity incentive plan.
G. Structural and exit events
18. Winding up, dissolution, voluntary liquidation, or any scheme of arrangement.
19. Any sale of all or substantially all of the Company’s assets, or any merger, consolidation, or reorganization.
20. Any Qualifying IPO or steps to prepare for an IPO.
Schedule 3: Form of Deed of Adherence
Deed of Adherence to the Shareholders’ Agreement dated [•] concerning Compliance Example Limited (合规示例有限公司)
This Deed is made on [•] by [name of adherent] of [address] (the Adherent) in favor of and for the benefit of the Company and each person who is a party to, or who subsequently adheres to, the Shareholders’ Agreement (the Agreement).
The Adherent agrees to be bound by and to perform all the terms of the Agreement as if it were an original party to it, in respect of all Shares it holds or acquires. Capitalized terms have the meanings given in the Agreement. This Deed is governed by Hong Kong law. Executed as a deed.
[Execution blocks]
Schedule 4: Description of Business; initial budget summary
- Business: [Concise description of the Company’s products/services, markets, and strategic objectives.]
- Initial budget: [Attach or cross-refer to Board-approved budget.]
Execution
Executed and delivered as a deed on the date first above written.
For and on behalf of
Compliance Example Limited (合规示例有限公司)
By: ______________________
Name:
Title:
Shareholder:
By: ______________________
Name:
Title:
[Repeat for each Shareholder]
Important notes for implementation
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This Agreement is drafted on the assumption that the Company is a Hong Kong private company limited by shares and that enforcement will be sought under Hong Kong law. Certain governance and transfer restrictions are most effective when mirrored in the Articles; ensure the Articles are amended accordingly on or before Completion.
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Bracketed figures, thresholds, timelines, governance allocations, and restrictive covenant parameters should be finalized to reflect the parties’ commercial agreement and regulatory constraints.
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For enforceability of restrictive covenants under Hong Kong law, ensure scope, duration, and geography go no further than reasonably necessary to protect legitimate business interests. Adjust parameters in clause 10 accordingly.
If your intended jurisdiction is not Hong Kong, please specify so I can tailor the agreement to the relevant corporate law framework and market practice.
