Shareholder Agreement Lawyer – Save Problems Later
Understanding the Importance of Shareholder Agreements in Business
A shareholder agreement is not the first document people think about when starting a business. However, from a legal perspective, it is possibly the most important one. A shareholder agreements lawyer North Shore, explains what one is, and why it is so important.
Definition and Purpose
A shareholder agreement is similar to a contract and is between the shareholders of a business. It sets out two key aspects:
- the rules for the ownership including the transfer of shares and
- the operation of the business.
Other issues that are often included are the management of the company, and how any disputes between the shareholders will be resolved.
The shareholder agreement is key as it states a clear understanding between the shareholders about their roles, responsibilities, and expectations.
Key Provisions
A well-drafted shareholder agreement will describe various situations which may arise within a company. For this reason directors will need to hire a shareholder agreements lawyer North Shore-based for local Albany businesses. The main ones include:
- Ownership and Transfer of Shares: If an owner wants to move on or cash-in their shares, there needs to be an understanding of how and who can buy those. For example, will the owners want an outsider coming in? Alternatively, if one owner gets divorced, can they transfer their shares to the ex-wife as part of the divorce settlement? Rules about share transfer, right of refusal, and any changes in shareholding need to be covered.
- Management and Voting Rights: Not so much day-to-day management but on a bigger picture, how will the company be managed? How and who can be appointed as directors, what can the board do, and what are the voting rights of shareholders?
- Dividends and Profit Distribution: This is a key issue as some owners may want to keep dividends invested in the company while others may want to have them distributed among shareholders.
- Dispute Resolution: When a company is started, everyone is friendly towards each other. But as time goes on, very often a dispute arises. This might be about the management of the business, distributing dividends, marketing, new products or directions, and more. This section will outline dispute resolution methods including mediation and arbitration. A clear outline at the start can save a lot of friction and animosity later.
- Exit Strategy: How can a shareholder exit the business? This section includes how to value their shares, who can buy them, and the rights of remaining shareholders.
Importance of a Shareholder Agreement
A shareholder agreement is essential for a number of reasons:
Protects Interests
The interests in the business of each shareholder are protected by describing their rights and obligations. By describing how and to whom shares can be transferred or sold, this then helps to protect the continuity of the company.
Dispute Resolution
Disputes will almost inevitably arise from time to time. Some might be relatively minor while others can be significant. A dispute can raise emotions and reduce logic so a shareholders’ agreement will set out who disputes should be handled. It is easier to get agreement on the process before it is needed than during any dispute. This will also save time and expensive legal work.
Clarity and Certainty
Businesses don’t like surprises. Clarity and certainty are much more preferable. The shareholders’ agreement creates this by stating any rules about management and decision-making, how and when profits can be distributed.
Anticipating Situations
The agreement can include clauses for special circumstances of the company and its shareholders. These might be the death or disability of a shareholder, how and when new shareholders might be allowed, and how to handle the sale of the company.
Conclusion
We have seen that a shareholder agreement is a key document for any company with multiple shareholders. It provides a clear framework for the ownership and operation of the business, protecting the interests of all shareholders and promoting the smooth and efficient running of the company.
By addressing key issues such as the transfer of shares, management, profit distribution, and dispute resolution, the agreement helps to prevent conflicts and ensure the long-term success of the business. Every company should consider drafting a shareholder agreement to safeguard its future and foster a harmonious relationship among its shareholders.
To ensure that your business and the shareholders are protected in this way, talk to a shareholder agreements lawyer North Shore for advice and drafting of the document. McVeagh Fleming is a leading law firm in Albany, on the North Shore.