You have decided to start a new company and have chosen a business entity. So what’s next? Although corporate bylaws are required, they don’t address important issues that may arise if you have two or more shareholders in your company. One of the first things you should do is to have an experienced business lawyer help you create a shareholders’ agreement and other important legal documents associated with your business to make sure your company’s and shareholders’ rights and interests are protected.
What Is A Shareholder Agreement?
A shareholder agreement is a legal document that outlines how a company should be operated and defines shareholders’ rights, liabilities and obligations. When drafted properly, a shareholder agreement ensures that shareholders are treated equitably and protects them from certain actions that may be taken by other shareholders and outside parties.
What Is In A Shareholder Agreement?
In addition to outlining the privileges and protections of shareholders and how the company will be managed, shareholder agreements often restrict a shareholder’s ability to transfer shares to third parties outside the company. Your agreement may also contain the number of shares issued, the fair pricing of shares, each shareholder’s percentage of company ownership, pre-emptive rights for existing shareholders to purchase shares, and specifics on payment if the company is sold.
A shareholder agreement also explains what will happen to shares should a shareholder pass away, retire or decide to leave the company. A shareholder agreement is often a vital element of small business succession planning and can ensure a smooth and equitable transition upon the death, retirement or disability of a shareholder.
A shareholder agreement may also address:
- Membership of the board of directors
- Officers of the corporation
- Majority or supermajority voting requirements on certain decisions
- Buy-Sell obligations, options or rights of first refusal
- Issues surrounding termination and dissolution of a corporation
- Employment agreements for shareholders/employees
- Bonus provisions
- Termination of employment of a shareholder
- Shareholders’ life insurance
- Dispute resolution processes
Why Do I Need An Attorney To Draft A Shareholder Agreement?
A shareholder agreement should have both the company and the shareholders’ best interests in mind. As a company grows and changes, conflict may arise, and a shareholder agreement can help you avoid costly legal battles down the road. Creating this type of agreement without assistance from a skilled business contract attorney may lead to contentious shareholder disputes.
An attorney who is well-versed in business law will create a contract that helps you understand your rights and responsibilities and ensures that your interests are protected. If you’re a small business owner or shareholder, it’s particularly important to seek the counsel of an experienced lawyer who can help you create bylaws, articles of incorporation, partnership agreements, nondisclosure agreements and other legal documents that will help your business start off on the right foot and run more smoothly.
From choosing a business entity to creating an effective business succession plan and shareholder agreement, the knowledgeable attorneys at Carosella and Associates help make starting your business a smooth process.