Shareholders AgreementA Shareholders Agreement is one of the most important documents for a new business. Often, you’ve had help from someone to get your first documents filed with the state. Your corporate books come back, stamped, and looking official. If you use corporate services, you hopefully have a raised corporate seal that you can use for your official documents. But after you have set up your company, you may not know what to do next. If you’ve used a website to set up your company, they’ve got your money already and their “work” (I use that term very lightly here – they just used a data merge to put your information into their pre-fabricated forms) is done. And then you are left with the important work of creating the agreements your company needs.

Depending on the type of company you have set up, a Shareholders Agreement may be the agreement you need. If you have created a partnership, the Partnership Agreement is likely the agreement you need.

What Is A Shareholders Agreement

When you have a small company or a business with a small number of shareholders, it is normally a good idea to have a Shareholders Agreement. The agreement is designed to explain and govern the relationship between the shareholders. Your initial corporate documents are usually a generalized framework for the company. The Shareholders Agreement refines those documents and personalizes them for your business.

Why Should My Business Have A Shareholders Agreement

There are a variety of reasons why you may want to have a Shareholders Agreement. Five reasons for you to consider them:

  1. Shareholders in the company may want to resolve any disputes between themselves. You may prefer a certain court system or arbitration or mediation. It’s your company and you may want to have any disputes submitted to arbitration or at least decided in your local courts. This alleviates the need for foreign attorneys or travel for the company to resolve a dispute.
  2. The local corporate law where the company is located may not provide protection for minority shareholders. Those shareholders may want more protection. Each state (and country) has different rules regarding the rights of minority shareholders. Your minority shareholders may want added protections before they will invest in your company.
  3. Likewise, the company may want to have a mechanism for removing minority shareholders from the company. The minority shareholders may want protections and you may want a process to remove them. This can avoid lengthy and expensive court proceedings.
  4. Privacy for the company. The company’s initial documents are normally available to the public. However, your shareholders’ agreement is a private document. It normally does not need to be filed publicly. As a confidential document, you can add more specificity and be confident in its privacy.
  5. Easier Revisions. It is easier to modify and amend a Shareholders Agreement. If you choose to use only your incorporating documents, any changes need to be publicly filed. To modify the shareholders’ agreement is the same as modifying a private contract.

There can be other reasons why a Shareholders Agreement is right for your business. Rather than trying to navigate the forms on a website, talk to an attorney.

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Next Steps

If you are thinking of starting a business or just never got around to crafting the documents you need when you started your business, give me a call to set up a Legal Strategy Session to discuss the process and what documents would be best tailored for your company – (877) AMAYERS.

Andrew Ayers
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I work with business and estate planning clients to craft legal solutions to protect their legacies.