A shareholders agreement drafted for a privately held company details the rights and obligations of the shareholders. It not only provides guiding principles for running the business today, it lays out the ground rules of what to do if one of the shareholders dies, becomes disabled — or one party wants to dissolve the business.
In other words, it can resolve issues in the future that you may not even anticipate now.
Caution: There are online shareholders agreement templates that can be filled in. But there is no one-size-fits-all shareholders agreement that is applicable to all businesses. Your company is unique and the terms of your shareholders agreement must reflect that. In addition, it must comply with the laws of the state where it is being drafted and be in compliance with SEC regulations.
A shareholders agreement can be a complex document. Here are just some of the questions your attorney may ask when drafting one.
|What is the basic information about the business and the shareholders?|
|How will transfers of shares be handled?|
|What about the sale of shares?|
|How is each share valued?|
|What will happen if a shareholder dies?|
|What happens if a shareholder becomes disabled?|
|What about new shares?|
|How will disputes be handled?|
|What about spouses?|
|What limitations will be placed on shareholders’ ability to compete — especially if they sell shares or leave the business?|
|Will there be a board of directors?|
|How will contributions be handled?|
|When will the shareholder agreement terminate?|
This article only covers some of the issues that could be covered in a shareholders agreement. The exact provisions will depend on the shareholders and they type of business. By having an agreement, you can help avoid contentious, expensive disputes in the future and help protect the rights of all shareholders.
Note: The attorney drafting the agreement is representing the company. Each of the shareholders should be advised to consult with an attorney to protect their individual interests.
© Copyright 2016.