Setting up Shareholder Agreements

WHAT IS A SHAREHOLDERS’ AGREEMENT?

A shareholder’s agreement is an agreement, among some or all of the shareholders of a corporation. The agreement usually sets out how the activities of the company will be managed and operated and deals with the regulation of shareholders’ relationship within the company. Generally speaking, the shareholders’ agreement is intended to protect shareholders’ rights, making sure that they are fairly treated.

As such, a shareholders’ agreement can serve as a tool to resolve disputes between shareholders. It also controls who continues to be a shareholder and places restrictions on new shareholders joining the company.

IMPORTANT TERMS TO INCLUDE IN YOUR SHAREHOLDERS’ AGREEMENT

Although a shareholders’ agreement is a flexible document that does not have specific requirements, there are some essential elements or basic provision that business owners need to consider and have in any agreements.

  • A shareholders’ agreement should deal with the financing issue of a company, setting out rules that regulate shareholders’ investment.
  • The agreement should contain terms to restrict shareholders on the transfer of shares.
  • A “buy-sell provision” that requires shareholders to purchase the shares of another shareholder on certain events. These events can be death, disability, retirement or voluntary withdrawal. In addition, the provision should also determine a value for shares.

Apart from the above-noted, some other key points that a shareholders’ agreement may include are:

  • The share structure of the company
  • The ownership of shares
  • Whether the shareholders’ agreement is unanimous, involving all of the shareholders.

A unanimous shareholders’ agreement allows the shareholders of the company to manage or supervise the management of the company to the extent that the agreement allows

  • Information of officers and managers
  • Quorum for meetings
  • Shareholders’ obligations and responsibilities
  • Remuneration of officers and directors

To sum up, it is very important to prepare a well-drafted shareholders’ agreement, otherwise there will be serious consequences for the shareholders. Therefore, it is worth investing some time to carefully examine the company’s needs and create an agreement that helps establish a healthy relationship based on trust and confidence among the shareholders. It will make the business run more smoothly without too many internal conflicts or disputes.

Connect with a Surrey BC corporate lawyer at Patrola Law who is experienced in drafting superior shareholder agreements.