Salient Considerations for a Shareholders Agreement

Salient Considerations for a Shareholders Agreement

Salient Considerations for a Shareholders Agreement

A shareholders agreement is necessary to protect the rights and ensure fair treatment of all parties involved. As official as it may sound, creating such an agreement is not mandatory. It should not be overlooked. The importance of them extends beyond current affairs and lays out a pre-established plan on how to deal with potential shareholders in the future. It is a document that outlines fair pricing of shares including up to the time they are sold or in the event the company is sold. Specific rights, obligations, and methods of operations are included so smaller organizations, in particular, may benefit the most from this.

When drafting such an agreement, it should be clarified who exactly has stock. Name the value and the rights that come with the stocks. Shareholders should also come into agreement on what happens to the stock when someone wants to leave the corporation or if they want to sell their share. If this were to occur, another formal document must be processed on the valuation of the stock. Some methods of valuation include a predetermined formula that was agreed upon, capitalized earnings, adjusted book value, or some combination of these.

Other incidents that should also have clear guides are complex life events. Such events are a death or disability. Or perhaps a shareholder goes through a divorce and their spouse has rights to the stock. Another possibility is the dissolution of the organization. Most likely the stocks will have rights regarding the liquidation procedures. But a course of actions of how the company finalizes their debts and winding up should be included as well. These situations would become more disruptive if left unattended in the agreement.

There are many details that are involved with Shareholders Agreements. You should always consult your attorney to hash out all the fine details and fully discuss your company’s course of action in order to draft a proper Shareholder Agreement.

 

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