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Guidelines to Consider when Entering a Shareholder Agreement

By Edited Jun 4, 2015 0 0

Are you are a shareholder in a growing company and you want to make some changes on how it is being managed and owned? If yes you will have to forge a shareholder agreement together with your co-shareholders. Before drafting the contract you should first know what to include in your shareholder agreement. It is important that your agreement is complete to avoid confusion or misunderstanding among the shareholders. Below are some guidelines on how to write your shareholder agreement:

  • Company structure and distribution of shares – There should be a definite percentage or rate on how shares and profit are going to be divided among the shareholders involved.

  • Shareholders involved – The exact number of shareholders should be highlighted to avoid assumptions.

  • Vesting provisions – There should be provisions in case a manager or director resigns from the company. The clause should involve whether he would still be covered by the shareholder agreement you have agreed upon.

  • Dispute resolutions among shareholders – In times of dispute, there should be a standard way of resolution to avoid factions.

  • Incapacity or death of shareholders – There should be corresponding terms that would apply in case a shareholder dies or acquires a disability.

  • Guidelines and restrictions – A definite list of restrictions should be included in the contract for the shareholders to comply.

  • Compensation – The amount of compensation directors and managers would receive should be included in the contract and discussed by the shareholders.

  • Company's legal advisors – A certain group of attorneys should be appointed to handle legal issues.

  • Abide by existing federal and state corporate laws – Every type of agreement should follow existing laws for it to be legally binding.

As you can see from the comprehensive list above, drafting shareholder agreements should not be underestimated. To make sure that all these important points are included in the contract you may get your company lawyer to assist you. With your attorney's help, you are assured that all the terms in your agreement are legal.

Once you are done writing the agreement, the next step is to present it to the company's shareholders. Expect that not everyone would agree with the terms on the contract. Fortunately, majority usually wins in these kinds of agreements. Even though your co-shareholders have their own copy of the agreement, you should still update them regularly so they would not forget the terms of your contract.



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