Also known as:shareholder control agreement · shareholders-control agreement · shareholders control agreement · voting agreement
Written by attorneys · grounded in primary & secondary sources — see below
An agreement among two or more shareholders that specifies the manner in which the parties will vote their shares. The agreement is formed by the shareholders signing a writing for that purpose and binds only the signatories. Such an agreement is specifically enforceable in equity.
Sources & Authorities
How it applies
Common Examples
2
Franchisees Block Dilutive Issuance
Lopez, Chen, and Davis each own shares in BrightLane Retail Holding Co. They sign a short writing stating they will vote their shares against any new stock issuance that reduces their ownership percentage. When the company later plans such an issuance, the three shareholders sue to compel one another to honor the writing and vote against it. The court treats the writing as a binding shareholder-control agreement and orders specific performance of the voting commitments.
Controlling Shareholders Lock In Merger Vote
Outcalt and Shaw, who together hold a majority of NCS shares, sign voting agreements with Genesis. The agreements require them to vote all their shares in favor of a proposed merger and grant Genesis an irrevocable proxy to cast those votes. When a competing bidder later emerges, Outcalt and Shaw attempt to back out. Genesis sues to enforce the agreements and the court orders the shareholders to vote as promised.
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Model Codes
Dictionaries
Omnicare, Inc. v. NCS Health Care, Inc.818 A.2d 914 (Del. 2003)
Common questions
Frequently Asked
4
What formal requirements must shareholders satisfy to create a valid shareholder-control agreement?+
Two or more shareholders must sign a writing that states the manner in which they will vote their shares. No other formalities, such as filing with the corporation or obtaining unanimous consent, are required. The agreement binds only the signatories.
Supporting sources
Is a shareholder-control agreement enforceable even if it does not identify a specific vote outcome in advance?+
Yes. The statute validates any written agreement that specifies the manner of voting, including an agreement to follow another shareholder's recommendation on each matter. Courts will specifically enforce such commitments.
Supporting sources
Does a shareholder-control agreement require approval by the corporation or by non-signing shareholders?+
No. The agreement is a contract solely among the shareholders who sign it. The corporation need not be a party and the absence of signatures from other shareholders does not affect validity between the parties.
Supporting sources
Can a shareholder-control agreement be enforced by specific performance?+
Yes. Under the Model Business Corporation Act a voting agreement created under section 7.31 is specifically enforceable, allowing a court to order a breaching shareholder to cast votes in accordance with the agreement.
Supporting sources
818 A.2d 914 (Del. 2003)Mergers and Acquisitions
…and - Outcalt and Shaw granted to Genesis an irrevocable proxy to vote their shares in favor of the merger agreement. - The voting agreement was specifically enforceable by Genesis. The merger agreement further provided that if either Outcalt or Shaw breached the terms of the voting agreements, Genesis would be entitled to…