DP3457 An Analysis of Shareholder Agreements

Author(s): Gilles Chemla, Michel Antoine Habib, Alexander P. Ljungqvist
Publication Date: July 2002
Keyword(s): call options, catch-up clauses, demand rights, drag-along rights, pre-emption rights, put options, shareholder agreements, tag-along rights
JEL(s): G34
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3457

Shareholder agreements govern the relations among shareholders in privately-held companies, such as joint ventures or venture capital-backed ?rms. We provide an explanation for the use of put and call options, pre-emption rights, drag-along rights, demand rights, tag-along rights, and catch-up clauses in shareholder agreements. We view these clauses as serving to preserve the parties? incentives to make ex ante investments when ex post renegotiation may alter the parties? shares of the payoff. We extend our framework to discuss the use of other clauses, such as the option to extend the life of a business alliance.