A shareholder agreement sets out rights and obligations of a corporation’s shareholders. Shareholders’ agreements are powerful tools to define duties and responsibilities and stipulate what happens when a shareholder no longer is associated with the company, either voluntarily or involuntarily.
Common provisions of a Shareholder Agreement
Shareholder agreements are drafted with consideration to the type of business, the corporate structure and shareholder needs of a company; however, typically the following clauses will be provided for in the agreement:
- Agreement on Corporate Matters
- Finances
- Restrictions on Share Transfers
- Transfer of Interests on Death
- Buy/sell Rights
- Shareholder Default – Events and Remedies
- Non-competition and Confidentiality
- Dispute Resolution Mechanism
Why a company should have a Shareholder Agreement
The provisions of the shareholders’ agreement that set out the rights and obligations of shareholders assist shareholders in avoiding conflict amongst themselves. Further, in the case there is a dispute among shareholders, the agreement will set out the process to resolve the dispute and mitigate complications which may arise from disputes. In turn, by entering into such an agreement, shareholders likely will save a great deal of legal fees and time, which may otherwise be spent on dispute resolution.
Specific advantages of a shareholders’ agreement include:
- Protection of shareholders when a shareholder dies or becomes disabled
- Provision for defined exit procedures, in the case a shareholder wants to leave the company
- Provision of mechanisms to remove a shareholder
- Control of who may become a shareholder of the company, through imposing restrictions on the transfer of shares by a shareholder
- Allows shareholders to exercise control over business and financial affairs, by setting out corporate actions that require unanimous approval of the shareholders
- Sets out the confidentiality obligations of the shareholders, in regard to the business of the company
We are here to help
A shareholder agreement tailored to a company’s business is an important tool for private companies and can save time, expense and frustration in the event of a shareholders dispute. Shareholder Agreements are commonly entered into by shareholders at the start of their relationship and are frequently prepared by Open Door Law Corporation’s counsel together with incorporating a company.
To learn more about the benefits of a shareholder agreement, please contact our office to book an appointment for a consultation.
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