SHAREHOLDER AGREEMENTS – DO YOU NEED ONE?

The answer is usually Yes. No matter how small or simple your business is, problems can arise which can be more easily addressed if you have a Shareholder Agreement in place.

Most shareholders in a company, especially at the inception of the company’s existence, believe that they share one vision with respect to the interaction of the shareholders and the future of the company. However, sooner or later it often becomes clear that the shareholders have not given thought to all of the potential issues they might face. The process of drafting a shareholder agreement often uncovers these potential issues, which are the issues typically addressed in a shareholder agreement. If you’re operating your business as a limited liability company, the equivalent agreement is referred to as an Operating Agreement.

The number and complexity of certain issues might be overwhelming, causing some shareholders to resist addressing them up-front. As the process might become tedious, it is always better to address the issues of concern when the mood among the shareholders is mostly positive and the specific issue has not yet come to pass. There is a greater chance of obtaining reasonable compromises on such issues before problems arise.

This is a list of some of the issues typically addressed in a Shareholders’ Agreement:

1. Capital Contribution Obligations of the Owners
2. Appointment and Powers of Officers and Directors
3. Restrictions on Stock Transfers
4. Terms of Stock Repurchases
5. Restrictions on Shareholders’ Participation in Other Business Activities

If you need assistance in determining whether you need a Shareholders’ Agreement or if you require assistance in preparing one, please call my office to speak to me or to schedule an appointment.