A shareholders agreement defines the relationship between the owners of a business. If your business is incorporated and has more than one shareholder, you may need a shareholders agreement. A well-drafted shareholders agreement helps guide the parties throughout their business relationship. It is especially helpful during a sale of the business or when adding/removing a shareholder.
There are two main phases of finalizing shareholder agreements: Negotiation Phase and Drafting Phase.
- Negotiating the terms of the shareholder relationship: There are a number of issues that the parties need to consider when entering a business partnership. As shareholders, owners not only need to agree on the investment but also on their rights and responsibilities. When discussing the terms of a shareholder relationship, some important issues to consider are:
- Business goals
- Share ownership
- Voting rights
- Powers and management
- Confidentiality obligations
- Share transfers
- Dispute resolution
This is not a comprehensive list. The exact terms to be negotiated depends on the relationship between the parties and requirements of each business entity. However, termination of relationship and sale of shares is one of the most important issues that should be discussed and reduced in writing. There are several options for disposition of shares and agreeing on an option may lead to extensive negotiations between parties. When negotiating the terms of the agreement, parties must keep in mind that any agreement should not contradict corporate articles or by-laws.
During the negotiation phase, it is important for each shareholder to get independent legal advice.
- Drafting the agreed terms in writing: This may seem obvious, but once the terms have been negotiated, it is important to draft an agreement. When the parties reduce the agreed terms in writing, they may realize that they need to further discuss certain issues or stipulate more details. It is important to get legal advice before signing any agreement. A business lawyer can help identify any ambiguities or contradictions in a shareholder agreement. As the business develops and relationships between parties change, it is important to revise any shareholders agreement.
A shareholders agreement is an important document and it should be negotiated and drafted properly. You can either engage a lawyer when negotiating the terms of the agreement or after the negotiations have been completed.
If you need help with negotiating or drafting shareholders agreement, contact us.
As a gentle reminder, this article is for general information purposes only and does not constitute legal advice.