As a seasoned business owner, shareholder agreements are incredibly important in protecting your businesses and your shareholders. Here’s why they should be essential to your business structure.

 

Shareholder Agreements

A shareholder agreement is a legal contract between the shareholders of a company that outlines their rights and responsibilities, as well as the rules for the management and operation of the company. It serves as a critical document that protects both the company and its shareholders in the event of disputes or disagreements.

 

Why is a shareholder agreement so important for my business?

1. Your business is unique.

You should be able to tailor the agreement to meet the specific needs of the company. For example, one business may require more stringent voting rights and restrictions on share transfers, while another business may have a more open approach to decision-making and share transfers. It’s important to be clear what is needed for the entity and how your shareholders can be involved.

2. Preventing disputes and disagreements among shareholders.

By clearly outlining each shareholder’s rights and responsibilities, as well as the rules for decision-making, dividend distribution, and dispute resolution, potential conflicts can be avoided or resolved more easily.

3. Protect the interests of minority shareholders.

As a business owner, I have seen cases where minority shareholders are not given adequate representation in decision-making or are excluded from the distribution of profits. A shareholder agreement can provide specific protections for minority shareholders, such as requiring a certain percentage of votes to pass certain decisions or requiring the distribution of dividends to all shareholders.

4. Attract investors to the company.

Potential investors want to see that the company has a well-defined structure and that their investment will be protected. A shareholder agreement can provide assurance to investors that their interests will be represented and protected.

 

Conclusion

By tailoring the agreement to meet the unique needs of each company, you can ensure that decision-making is fair and transparent, disputes are avoided or resolved more easily, minority shareholders are protected, and potential investors are attracted.

If you are starting a new business, or own several already and just looking to tidy things up a bit, we suggest reaching out to legal counsel, just to ensure that all of your “T’s” are crossed and your “I’s” are dotted. Start-ups are a lot of work, and important things that seem like small things can sometimes slip through the cracks. In our experience, having the guidance of a certified professional is always worth it.