A shareholders’ agreement is a private business contract that outlines the rights and obligations of the shareholders and protects their interests. It is not a legal requirement for any business entity but can be an effective tool for mitigating and resolving disputes between shareholders of a company.
What should be in your shareholders’ agreement?
A shareholders’ agreement differs for each company but typically has the same goals: to give each shareholder fair treatment and protect their rights. Therefore, it is essential that your shareholders’ agreement includes the following provisions:
- A preamble that identifies the parties in the agreement
- The objectives of the agreement
- Restrictions and instructions on the transfer and issuance of shares
- The voting rights of shareholders
- Dividend payments
- A right of first refusal clause
- The fair prices for the shares of the company
- The management of the company
- How they will deal with board members
- Dispute resolution
It is exciting to start a company, especially when you share ownership with people you are close with, like your family. However, personal relationships can blur the boundaries of your professional relationship. A shareholders’ agreement can reinforce those boundaries.
A shareholders’ agreement prevents a potential conflict
Even when a corporation already has articles of incorporation, the shareholders can enter an agreement to supplement existing mandatory documents and protect each shareholder’s investment in the company. Smaller businesses, startups and closely held corporations can benefit from a shareholders’ agreement as it allows them to know their roles and limitations in the company, fostering fairness and equality.