Important Elements of a Shareholders’ Agreement
A shareholders’ agreement is a business contract that details the rights and obligations of the stakeholders of a corporation. The agreement is the foundation of a successful business arrangement. It also protects your business interests. If your shareholders’ agreement is inadequate, it could lead to future disputes or to you losing out on your share of the business. An experienced attorney should always draft, and review, your agreement to ensure that your shareholder rights are fully protected.
Four Areas An Agreement Should Cover
- Legal obligations: Before anything else, a shareholders’ agreement should address the legal obligations of every party involved. Ultimately, this agreement is the structure of the business. The responsibilities of all owners, and investors, need to be clear and in writing. If this part of the process is not handled with proper diligence, a dispute will likely follow. Shareholder disputes can do serious damage to a business. A well drafted agreement will go a long way toward mitigating the risk of shareholder disputes. Of course, you can never eliminate the risk of disputes entirely, but if one does arise, a well drafted agreement will also allow you to be confident that your rights are fully protected.
- Financial considerations: Your agreement should account for all relevant financial considerations. This includes how much each shareholder will be required to commit to the business, and what forms that commitment will take. For example, is an in-kind commitment, such as time spent working on business-related matters, considered a valid contribution? Further, you need to be prepared for what will happen if one partner does not follow through with their financial commitments. Will you be able to dilute the equity of that business partner?
- Getting out: All business relationships eventually come to an end, and devising a clear exit strategy for shareholders is one of the most important aspects of any agreement. First, you need to know that you will be able to get your money out of the business. At the same time, the agreement also needs to be structured so that one shareholder leaving will not substantially damage the remaining shareholders. Often, shareholders’ agreements contain a minimum holding period provision. This means that no shareholders can sell until a certain amount of time has passed. Further, you need to consider whether or not shareholders will be allowed to sell their shares on the open market, or if they will be required to sell to other current shareholders. Maybe it will be something in between, such as the other current shareholders getting preference.
- Decision-making: Finally, your agreement should detail exactly how all major decisions will be made. Different business need different structures for decision-making. For example, some businesses work best when unanimous shareholder agreement is required to move forward with a major decision. On the other hand, that would grind some business to a halt. A two-thirds majority might make more sense for your company. This is a very individualized consideration, and an experienced attorney can help you figure what type of arrangement best suits your needs.
Contact An Experienced West Palm Beach Shareholder Disputes Attorney
At Pike & Lustig, LLP, our experienced attorneys can help draft, or review, your shareholders’ agreement to ensure that your interests are fully protected. If you have any questions about shareholders’ agreements in Florida, please call our office today at (561) 291-8298 for additional information.