This document is a new clause to be inserted into a shareholders’ agreement. The clause limits the liability of the founding shareholders of the company.

A founding shareholders’ limitation of liability clause is often incorporated in a shareholders’ agreement when new shareholders invest in an established company. The purpose of the clause is to limit the liability of founding shareholders for any breach of the warranties, representations or indemnities provided by the founding shareholders to the new shareholders.

Using this precedent

This is a general clause which can be inserted into a shareholders’ agreement. It can also be used to add limitation of liability provisions into the separate precedent “Shareholders’ agreement (short form)”.

When inserting this optional clause into an agreement, care must be taken to ensure that the agreement remains consistent. Cross-references, definitions and schedules should all be checked.

This document has been authored for LexisNexis by Elise Margow, Principal, Legally Speaking.

This document is prepared with the assistance of Specialist Editor Stephen Newman, Executive Counsel, Ponte Earle.