Are Shareholders Agreements Opaque And Uncertain Or Important Tools For Private Ordering?

Professor Jill E. Fisch at the University of Pennsylvania has recently released a working paper in which she examines the shareholder agreements and argues that that courts should limit their enforcement to those situations that are exclusively concerned with a shareholder's individual interests.  She criticizes shareholder agreements as opaque and uncertain and as vitiating the standardization of the corporate form.  Instead, she argues that shareholders agreements should be presumed to be invalid to the extent that they address matters that could be addressed in the articles or bylaws.

A "shareholders' agreement" under the California General Corporation Law may not be what some may believe it to be.  The term has a very specific and narrow definition.  Section 186 defines a "shareholders' agreement" to be a "written agreement among all of the shareholders of a close corporation, or if a close corporation has only one shareholder between such shareholder and the corporation, as authorized by subdivision (b) of Section 300."  See Court Declines To Declare "S" Corporation Shareholders' Agreement Unenforceable.

While I don't share Professor Fisch's chary assessment of shareholders agreements, the article provides a good broad-based analysis of the role of these agreements in corporate governance.  The article is available here.