All About Shareholder Agreements: Why It Is Essential to Your Business

Shareholder agreements are those between the shareholders of a company that govern how the shareholders will operate the business and the company.

They are similar to a partnership agreement but for a corporate structure.

They will govern such matters as:

1.      the roles of the shareholders in the operation of the company and the business.

This is often a point of contention for shareholders if they have not previously agreed on the role of each of them. Shareholders can become upset with the other if they do not believe they are pulling their weight. By defining the roles of the parties, the hours they are expected to work and what is expected of them, then this will help to alleviate any dispute.

2.      how and when shares can be sold and with what value

This can prevent shareholders from selling their shares to a third party and the remaining shareholders all of a sudden find themselves in business with a stranger.

3.      what will occur if there is a dispute between the parties

4.      the default procedure which can include a requirement to shell shares at a certain value, if any party is in default under the terms of the Shareholders Agreement

5.      the percentage of shareholders that need to vote on specific matters for it to be agreed

For example, 50%, 75%, or 100% of shareholders need to agree that the assets of the company may be solved.

6.      if the company will provide a car, credit card or other asset which is to be used by the shareholders and when

7.      the upper limit of the amount a shareholder can spend without requiring board approval

Shareholder agreements are incredibly important as they help avoid disputes.

You should have a shareholders agreement prepared when you incorporate your company or take on shareholders into a pre-existing company, as it will be too late to try to reach agreements if the parties are already in dispute.

Protect your business and ensure smooth operations with a comprehensive shareholders agreement. Our expert franchise and business lawyers are here to help you every step of the way.