We don’t like to admit it, but in business, things can go terribly wrong. Basic operation agreements are something that every future and current business owner should consider before it’s too late.
Whether you’re deciding to include additional shareholders or join a company as a shareholder, it’s an extensive and complex process. The objective is to make sure that everything runs smoothly and efficiently from start to finish. A shareholder agreement can help with that.
What’s A Shareholder Agreement?
A shareholder (or stockholder) agreement is an arrangement among shareholders of a company. It outlines each shareholder’s obligations and rights. It also covers information about the company’s management and the rights and privileges of shareholders.
When Is A Shareholder Agreement Necessary?
It’s most effective when it’s created in the business’s inception. And the rights and obligations should be established to protect all shareholders and investors involved in the company.
A shareholder’s agreement is optional and different from mandatory company bylaws. A shareholder’s agreement is dictated by the shareholders, for the shareholders, and is most effective when the company has a small number of active shareholders.
What’s Included in A Shareholder Agreement?
The basics. Details like the date of the agreement, the number of shares that have been issued, the percentage of company ownership, and details on payments if the company is sold are all part of a shareholder agreement.
In addition, the agreement should cover four main areas to ensure the business and all shareholders are protected.
Each shareholder will have certain responsibilities; this needs to be clearly stated in writing. By legally defining the obligations of each individual involved, the agreement helps eliminate risks in the instance of a dispute.
When each shareholder invests in a business, the financial specifications of the amount that they invest needs to be specified. The agreement will also dictate what commitments are required from each investor, and what will happen if the financial commitments are not met.
When the time comes for you to exit or move on from a business, a shareholder agreement makes the process smooth and efficient. Each investor needs clarification on how much money they will get, the timeline that could restrain an exit, and details confirming whether the shares can be sold on the open market or not.
The agreement will also determine how all of the main business decisions will be made. The structure differs from business to business. It’s up to the shareholder agreement to finalize these details.
Tips For Creating A Shareholder Agreement
While it is clear that the agreement includes the details on issuing and transferring shares, paying dividends and details of running the company, there are other tips to consider.
It is important to get the help of an experienced attorney to help draft an effectual agreement that guarantees all shareholders are fully protected.
Gary Handin has recently been honored by the Florida Bar for 50 years of dedicated service. This expertise is demonstrated in the following considerations that are prioritized when drafting a shareholder agreement.
- All concerns for business relationships are protected
- A combined shareholder and subscription agreement are met
- The operational details of the agreement are kept confidential and separate from the public
- Difficult questions are addressed and answered
- An exit clause is included
Ultimately, a shareholder’s agreement will help iron-out all of the details (and potential issues) of your business by bringing the shareholders together under the guidance of a legal expert.